Study: Insurers Residual Auto Losses Tick Upward

By Daniel Hays

NU Online News Service, Feb. 10, 2 :16 p.m. EST?Insurers losses from participation in the nation's personal auto assigned risk plans, which bottomed out in 2000, are now on a steady upward trend, according to a trade group study.[@@]

The plans' "loss ratio in 2000 and 2001 skyrocketed," said Roger Kenney, assistant vice president for research at Property Casualty Insurers Association of America, Des Plaines, Ill., which produced the study.

Figures in the PCI residual markets report run only from 1997 to 2001, but Mr. Kenney said with the tightening of the market in 2001, "we would expect the number of cars [in the residual market] to grow."

Mr. Kenney said most of the residual market action is concentrated in seven states where the residual market percentage exceeds 1.8 percent.

First among the seven is North Carolina, where the residual market percentage is 15.4, followed by Massachusetts, 11.2; New York, 8; Maryland, 5.2; New Jersey, 4.5; Rhode Island, 3.2 and Hawaii, 2.1.

Nationwide, the report said, the private passenger auto residual market increased from 1.5 percent of premiums nationwide in 2000 to 1.8 percent in 2001. The residual share had been declining since 1992 when it was at 5.6 percent.

PCI noted that all states and the District of Columbia have systems in place ? commonly known as "assigned risk plans" ? that guarantee coverage for motorists who cannot obtain insurance in the private market. The plans and similar programs such as Joint Underwriting Association pooling mechanisms make up the shared, or residual market. Policyholders are assigned to various companies that write business in that state. Insurers must provide coverage and pay claims for these policyholders.

PCI also looked at Commercial Automobile Insurance Programs which involve a limited number of carriers issuing commercial policies and servicing the business with operating results shared by all commercial auto insurers.

In 2001, the CAIPs, in nine states for which PCI has figures, registered a total underwriting loss of more than a half a billion dollars led by a $337,744,000 loss in Massachusetts.

For private auto PCI found the loss ratio decreased from the record level of 181.8 in 2000, but the loss ratio of 146.1 was still 75 percent higher than the loss ratio for the private auto industry in 2001.

PCI found New York, in particular, is a concern. The organization said the state's rates are inadequate and it has a large residual market with 2001 written premium of $725,138,000 and a loss ratio of 156. Some other states with even more gigantic loss ratios were not a concern because their premium levels are so small, Mr. Kenney said. As an example, Ohio in 2001 had a loss ratio of 1184.7 but took in only $3,000 in premium.

PCI singled out South Carolina for praise, noting that legislative reforms made in the late 1990s had resulted in a residual market share drop from over 25 percent of all policies in 1998, to 1.2 percent in 2001. Mr. Kenney said the South Carolina loss ratio was 73 in 2001 having declined from 82 in 2000.

South Carolina legislative changes involved allowing insurers to change rates without prior approval within a flex rating band.

PCI said losses in North Carolina, where 15.4 percent of the premium is in a residual market plan, amounted to $171 million while losses in Massachusetts, which has a unique plan, totaled $337 million for both personal and commercial auto policies

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Study: Insurers Residual Auto Losses Tick Upward

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