U.S. auto market showing signs of deterioration: Fitch

As jurisdictions across Canada continue to grapple with their respective auto insurance products — be it deteriorating results or court challenges to minor injury caps — a recent report indicates auto insurance results south of the border are also heading south.
In FitchRatings’ Auto Insurance Market Overview, the rating agency suggests that the U.S. auto insurance market will veer into an underwriting loss in 2009.
The industry’s personal auto insurance combined ratio (auto liability and physical damage combined) for 2008 was 99.9%, marking the industry’s sixth consecutive year with a sub-100% combined ratio.
But “auto market underwriting performance is expected to decline in the near term and the industry will likely produce a modest underwriting loss in personal auto for 2009,” the report says.
“This expectation is based on loss costs increasing faster than premiums, as well as a reduction in favourable prior-period loss reserve development.”
In 2008, the net premium growth rate was -1.7% for the total auto industry when compared to 2007.
Despite the U.S. federal government’s “Cash for Clunkers” program, year-over-year new car sales are down roughly 27.4%.
“While new cars typically cost more to insure, consumers are scaling back on additional car purchases or delaying new car purchases,” Fitch says. “Both actions generally reduce premium levels.”
While there is evidence that large market participants are increasing premium rates in many states, in the near term, Fitch anticipates some of the price increases necessary to return to a stronger underwriting profit will be hindered by the weak economic environment and traditional competitive pressures.