Despite the economic damage of the coronavirus pandemic, both AM Best and Moody’s Investors Service have given the U.S. personal lines insurance segment a “stable” rating for 2021. Consumers may see lower car insurance costs but slightly higher homeowners premiums.

Key Takeaways:

Key Takeaways

  • Both AM Best and Moody’s Investors Service have given the U.S. personal lines insurance segment a “stable” rating for 2021. A “stable” rating is a reflection of a company’s ability to pay claims.
  • Drops in driving and claims activity in the auto insurance market have offset the adverse effects of the coronavirus pandemic on premiums so far.
  • Homeowners insurance companies saw major claims resulting from catastrophes in 2020, and premiums may rise by mid-single digits in 2021. 

How the Two Rating Services Arrived at Their Ratings

AM Best’s report notes that despite the pandemic, insurer surplus levels remain sufficient to support underlying risks for most personal lines carriers.

Among personal auto insurers, a drop in claims activity has offset any negative effects of the pandemic on premiums so far. And because many drivers must have auto insurance, the segment likely won’t be affected as much by any GDP decline or market upheaval. 

Although the homeowners insurance segment was hit by a spike in catastrophe activity in 2020, companies have benefited from improved pricing sophistication, exposure management, and enhanced reinsurance programs. The leading homeowners insurers have also invested in technology to improve underwriting and pricing, as well as predictive modeling and pricing analytics. 

AM Best’s ratings are a guide to a company’s ability to pay its claims—obviously an important matter for consumers. “You want to make sure the insurance company is going to be a good payer,” says John Andre, managing director at AM Best. 

For its part, Moody’s Investors Service noted auto carriers’ robust underwriting results amid lower claim frequencies, and homeowner carriers’ prudent response to natural catastrophes. Additionally, Moody’s predicts a stable outlook based on the recovering economy, since property and casualty premiums grow at about the same pace as GDP over time. 

"The coronavirus pandemic has had differing effects on personal auto and homeowners business during 2020," Paulette Truman, vice president and senior analyst for Moody's, noted in a company press release. "Pandemic-related business lock-downs and shelter-in-place mandates caused a sharp decline in vehicle miles traveled during the spring of 2020, leading to a decline in auto accident frequencies. Meanwhile, homeowners insurers have incurred above-average losses this year from natural catastrophes."

Auto insurers responded to the drop in driving activity by refunding portions of their policyholders' premiums. Now that driving activity is increasing again, accident frequencies are also rising but remain below normal levels. “It’s still a favorable experience for insurers, and that leads to price competition,” says Bruce Ballentine, vice president and senior credit officer at Moody’s. “Competitors are going to be lowering prices.” 

The pandemic has also resulted in an increased level of comfort among auto insurance customers with telematics—the use of technology to track mileage and driving behavior, which can result in lower premiums or rewards for safe driving. “Prior to COVID-19, there were concerns about privacy,” Truman said. “But people have started realizing that telematics gives them a chance to pay their insurance premiums based on how they drive, how much they drive, and when they drive.” 

Regarding homeowners insurance, Moody’s predicts that premiums will grow by mid-single digits. Although smaller claims went down—because so many people were working from home and able to detect and remedy minor problems early—catastrophic events wreaked havoc on the market with above-average losses. “Catastrophes have become more frequent, more costly over the last several years, and that drives up the pricing,” Ballentine says.