May 14, 2021 by Greg Meckbach
The long-tail nature of motor vehicle liability and auto accident benefits claims means a temporary drop in total miles driven due to the pandemic does not necessarily equate to a corresponding drop in premiums for your clients, Intact executives suggest.
“The [auto claims] severity inflation, which we have observed for a number of years, is fully baked into our [auto] rate position and our rate adequacy,” Intact Financial Corp. CEO Charles Brindamour said Wednesday during a conference call discussing the insurer’s financial results for the three months ending Mar. 31, 2021.
With auto rates, “we are temporarily reflecting a drop in frequency,” Brindamour reported, “but we have done that in a way where we can revert back to pre-COVID rate levels without too many obstacles as driving returns back to normal.”
Brindamour was responding to the question of an investment banking analyst, who asked Intact officials for their views on trends over the next 12 months regarding severity of personal auto claims.
Another analyst asked about data from Intact’s usage-based insurance; specifically, total kilometres driven now compared to pre-COVID.
In the most recent quarter, milage was down about 13% compared to pre-pandemic, said Brindamour. This is “nowhere near” the reduction Intact saw in March-April of 2020, he added.
In May 2020, Brindamour reported driving was down about 50% in the weeks immediately following the World Health Organization’s declaration that COVID-19 was a global pandemic, compared to pre-pandemic levels.
Though driving and auto claims frequency may be down, nearly two-thirds of auto claims are from accident benefits and liability coverage, while only about a third are from property damage claims covering repair and replacement of vehicles, said Brindamour.
“What you see in the drop in frequency is far more pronounced in short-tail lines and it is far less pronounced in long-tail lines. Why? Because long-tail lines are indeed long-tail and, as a result, we will take a cautious stance until we see what severity will do,” said Brindamour.
“As we look at the current COVID environment, on long-tail lines – in other words, lines that are subject to liability exposure and accident benefits exposure – we have taken a really cautious stance in reflecting the impact of the reduced driving to ensure that it does not come with meaningful increases in severity for various reasons. We are not really observing that now, but learning from the inflation in liability, we are taking a fairly cautious stance at this stage.”
Intact reported Tuesday a 3.4-point improvement in its claims ratio in personal auto, from 70.9% in the first quarter of 2020 to 67.3% in the most recent quarter. The combined ratio improved in personal auto from 94.6% in 2020 Q1 to 93.4% in the three months ending Mar. 31, 2021.
Company-wide, Intact reported direct premiums written were up 1% from $2.521 billion in 2020 Q1 to $2.522 billion in the latest quarter. All of that growth came from the United States (Intact acquired commercial insurer OneBeacon in 2017), with direct premiums written rising from $396 million in 2020 Q1 to $397 million in the latest quarter.
In Canada, Q1 direct premiums written were unchanged at $1.125 billion both this year and last year.
The growth in premiums was offset by $75 million in new relief measures announced Mar. 18, 2021.
Intact recorded $157 million in relief measures in 2021 Q1. Of that, $75 million was from the new program and $82 million was from the pandemic relief program announced in 2020.
Feature image via iStock.com/gorodenkoff