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The US auto insurance industry continues to emerge from four years of pandemic-induced volatility, but individual carriers’ approaches to an improving marketplace remain characterized by the sort of caution that historically poor underwriting results can induce.

S&P Global Market Intelligence projects that the private-passenger auto business is poised to return to profitability in 2024, just two years removed from its worst underwriting results in generations. The commercial auto business remains subject to unique dynamics, including challenging niches and prospects for outsized jury awards and legal settlements in specific jurisdictions, that likely makes its path to recovery less linear in nature. In both cases, we expect the pandemic-era volatility to have a lasting impact on market composition.

The private auto business has been consolidating for years both in terms of market share and the number of carriers writing meaningful amounts of premiums — and for good reason. The largest players in the space have increasingly differentiated themselves in a variety of ways, leveraging competitive advantages that vary from company to company but cumulatively serve to concentrate more business in a smaller array of carriers.

We see the business continue to separate itself into three broad categories of companies:

1) Large, national or superregional carriers that benefit from some combination of economies of scale, impenetrable financial strength, differentiated distribution, broad and deep data and analytics, iconic brands and/or lean expense structures;

2) Smaller carriers focused on specific market niches such as nonstandard vehicles, collector cars, high net-worth customers, or a leading presence in a handful of states in which national writers have opted to remain underrepresented; and

3) Companies that retain a private auto presence due to corporate inertia and/or a belief that a full suite of personal lines products is necessary to maintain customer and agent relationships.

The historically poor underwriting results in 2022 and 2023 have prompted a growing number of companies that previously fell into the third category to reconsider or scale back their continued presence in the private auto market. Whether by choice or necessity, we believe more carriers will continue to engage in some corporate soul-searching as the largest players’ competitive moats grow wider and deeper.

The commercial auto market remains much more fragmented overall even as the No. 1 writer based on 2023 direct premiums written, Progressive Corp., has consolidated its leadership position in a dramatic manner in recent years. A number of national carriers have limited the breadth and depth of their exposure to the business given the profitability challenges it has faced, necessitating the presence of risk-retention groups and other carriers with a narrow focus on specific classes.

Over the longer term, we expect competition to return with a vengeance in the private auto market as carriers gain comfort with the durability of improved underwriting results. We are reluctant to project dramatic changes in the fortunes and state of the commercial auto market, however, as the business closes in on its 13th underwriting loss in the past 14 calendar years.

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