California personal auto insurance speeds to new highs – AM Best

California’s direct premium written for all private passenger automobile insurance rose 11.6% in 2023 to $36.49 billion, according to data from AM Best.

This makes California the largest US market for this line, accounting for 11.5% of total US direct premiums written (DPW) last year.

In 2023, 44 groups and unaffiliated companies writing $1 million or more of direct premium in California reported combined ratios of 100 or higher for all private passenger auto. The combined ratio for private passenger auto in California reached 109.98 in 2023, exceeding the total US figure of 100.35.

While the national average improved by nearly six points, California’s combined ratio worsened by over 1.5 points from 2022 to 2023. The state’s combined ratio had exceeded 100 only once since 2013, at 103.43 in 2016.

Personal auto losses have increased nationally in recent years due to various factors, with insurers in some states adapting more quickly than others, according to Bob Passmore, vice president of the personal lines department at the American Property Casualty Insurance Association.

“Insurers were paying out more in claims than they were taking in in premiums,” he said. Passmore attributed this to increased severity due to faster road speeds during the COVID-19 pandemic and higher repair and replacement costs from supply chain issues and increased labor and parts costs.

Companies like Allstate have cited rising medical expenses and higher legal costs due to increased attorney involvement in personal auto claims. Passmore also noted that modern vehicles, which are essentially “computers on wheels,” complicate and extend repairs.

Even electronic components not directly impacted in an accident can be damaged during repairs, leading to higher costs for auto insurers.

Nationally, carriers are obtaining needed rate increases, but California presents a different challenge. The state has a rigorous regulatory review process and went over two years without approving personal auto rate increases after Insurance Commissioner Lara Ricardo questioned auto profits early in the pandemic.

In 2020, the combined ratio for private passenger auto improved to 82.51, the lowest in a decade, but it has since risen significantly.

Passmore said that reforms by Commissioner Ricardo’s department and Gov. Gavin Newsom are intended to add more predictability to the rate process.

“You cannot have rate requests pending for more than a year while inflation drives up costs,” he said.

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