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AM Best, Moody’s Rate Home and Auto Insurers “Stable”

Despite the economic damage of the coronavirus pandemic, AM Best and Moody’s Investors Service have given the United States personal insurance segment a “stable” rating for 2021. Consumers may see lower auto insurance costs, but slightly higher owner premiums.

Key points to remember:

Key points to remember

  • AM Best and Moody’s Investors Service have assigned the US personal lines segment a “stable” rating for 2021. A “stable” rating reflects a company’s ability to pay claims.
  • So far, lower driving and claims in the auto insurance market have offset the adverse effects of the coronavirus pandemic on premiums.
  • Home insurance companies recorded major claims from catastrophes in 2020, and premiums could rise by a mid-digit in 2021.

How the two rating services arrived at their ratings

AM Best’s report notes that despite the pandemic, insurer surplus levels remain sufficient to support underlying risks for most personal insurers.

Among personal auto insurers, a drop in claims activity has so far offset the negative effects of the pandemic on premiums. And because many drivers need car insurance, the segment is unlikely to be affected as much by any GDP market decline or upheaval.

Although the home insurance segment was hit by a catastrophic spike in activity in 2020, companies benefited from improved pricing sophistication, risk management and improved reinsurance programs. Major home insurers have also invested in technology to improve underwriting and pricing, as well as predictive modeling and pricing analysis.

AM Best’s ratings are a guide to a company’s ability to pay its claims, which is obviously an important issue for consumers. “You want to make sure the insurance company will be a good payer,” says John Andre, chief executive of AM Best.

For its part, Moody’s Investors Service noted strong motor carrier underwriting results amid lower claims frequencies and owner carriers’ cautious response to natural disasters. Additionally, Moody’s forecasts a stable outlook based on the economic recovery, as P&C insurance premiums grow at roughly the same rate as GDP over time.

“The coronavirus pandemic had different effects on consumer and consumer businesses in 2020,” Paulette Truman, vice president and principal analyst at Moody’s, noted in a company press release. “Pandemic-related business closures and shelter-in-place mandates led to a sharp drop in vehicle miles traveled in the spring of 2020, leading to a drop in the frequency of motor vehicle accidents. Meanwhile, insurers of Homeowners have suffered above-average losses this year from natural disasters.”

Motor insurers reacted to the decline in driving activity by refunding part of the premiums of their policyholders. Now that driving activity is increasing again, accident frequency is also increasing but remains below normal levels. “It’s always a good experience for insurers, and it leads to price competition,” said Bruce Ballentine, vice president and chief credit officer at Moody’s. “Competitors will lower prices.”

The pandemic has also resulted in an increased level of comfort among auto insurance customers with telematics— the use of technology to track mileage and driving behavior, which may result in lower premiums or rewards for safe driving. “Before COVID-19, there were concerns about privacy,” Truman said. “But people have started to realize that telematics gives them the ability to pay their insurance premiums based on how they drive, how long they drive, and when they drive.”

For home insurance, Moody’s expects premiums to increase by a mid-digit. Although small claims declined as many people worked from home and were able to quickly detect and resolve minor issues, catastrophic events wreaked havoc on the market with above average losses. “Disasters have become more frequent and more costly in recent years, driving up prices,” says Ballentine.

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