US personal auto insurers leading in innovation, particularly in automated claims management and data-driven underwriting, are gaining significant competitive advantages in the market, according to the latest insights from AM Best.
The report, titled “Highly Innovative Personal Auto Carriers Have Significant Competitive Edge,” highlights the disparity in innovation levels among insurers and how it impacts their market performance.
The credit agency, which has been evaluating insurers' innovation efforts since 2020, notes that innovation is crucial in maintaining pace with the evolving market dynamics. Helen Andersen, an industry research analyst at AM Best, emphasized the natural fit of innovation within the personal auto insurance sector.
“Personal auto as a line of business is well suited to innovation,” Andersen said. “Carriers deal with large homogenous risks, allowing initiatives to be scaled and replicated relatively easily.”
The findings reveal that personal auto insurers recognized as highly innovative not only achieve greater market share and business growth but also exhibit lower combined ratios than their less innovative counterparts.
Specifically, insurers categorized as innovation leaders have registered an average net premium growth (NPW) of 13.3% since 2018, significantly outpacing the 5.5% growth rate of the AM Best personal auto insurers' composite.
The correlation between innovation and net premium growth has become more pronounced with the rapid technological changes and shifting consumer preferences. The report suggests that embracing innovation is increasingly vital for insurers to secure higher returns.
Despite the advantages of innovation, the report notes that some leading innovators still face challenges in converting their initiatives into underwriting profitability.
Moreover, in 2023, AM Best downgraded the ratings of 18 US personal auto carriers, with those classified in the non-innovator categories (“Minimal” and “Moderate”) being disproportionately represented among the downgrades, underscoring the risks associated with lagging in innovation.
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