The U.S. auto insurance sector may be approaching a yield sign of increased competition after cruising through favorable pricing conditions for the last three years, according to a special report by Fitch Ratings. Though an actual decline in auto insurance rates is unlikely in the near term, Fitch expects that auto insurance rate increases will level off, which creates two potentially different scenarios for various auto insurers.
“Those insurers who have been able to use favorable market conditions to their advantage by building market share and surplus will be best positioned,” said Donald Thorpe, senior director of Fitch Ratings. “Conversely, insurers who failed to take advantage and are still struggling with underwriting issues will likely find it more difficult to correct pricing deficiencies, thus potentially decreasing their competitive position.”
Regulatory pressure may also intensify if purchasers see insurance costs rising faster than their ability to pay them, or if the insurance industry reports profit levels that purchasers and consumer groups deem excessive. “Such scrutiny puts a limit on companies’ ability to raise rates even when those increases are economically justified,” Thorpe said.
The report, U.S. Automobile Insurance 2003: Cruising, But What About the Road Ahead?, examines recent results and trends in the U.S. auto insurance market, and is available on the Fitch Ratings Web site.