The credit rating agency AM Best said in its latest property insurance report that the market segment continues to have a subpar outlook, driven by a number of factors working against the industry.

“The outlook for the personal lines segment remains negative amid deteriorating personal auto and homeowners results,” AM Best said in its report.

The agency’s outlook is a reflection of how current trends are likely to impact insurers throughout the next year. It said its less than favorable outlook for personal lines doesn’t necessarily mean all companies will do poorly, but that they’ll likely be impacted by ongoing conditions.

It said: “Carriers that are slow to address the challenges ahead or do not have the means, expertise or technical capabilities to keep pace with changes in the segment will likely face ratings pressure.”

Contributors to AM Best’s poor outlook include:

• • “Ongoing deterioration in reported financial results for both the personal auto and homeowners lines;
  • “Rising loss cost severity, driven by inflationary pressures;
  • “Challenges maintaining rate adequacy;
  • “Elevated reinsurance costs and tightened terms and conditions;
  • “Heightened catastrophic loss volatility;
  • “Restrictive regulatory environment in various states; and
  • “Higher overall retentions and co-participation on property lines, driving higher net losses.”

However, the report also noted that efforts are at play to offset those factors, including through the accelerated adoption of technology, improving catastrophic risk management practices, and aggressively pushing for rate adequacy throughout the segment.

As it relates to auto insurance, AM Best said the increase in loss severity is attributable to higher fatality rates, increased repair costs and new vehicle prices, labor disruptions, inflation, and rising medical costs.

It said distracted driving will likely be a contributor to loss trends going forward, and that modern vehicles equipped with advanced driver assistance systems (ADAS) technology could prove to be a double-edged sword.

“Newer vehicles with enhanced safety features account for a growing percentage of vehicles on the road, which may ultimately favorably impact frequency, but their repair costs are higher,” the report said. “With limited access to needed parts and shortages of qualified labor, the time for repairs has lengthened considerably, resulting in additional low-cost pressures.”

AM Best said that while telematics could ultimately help insurers address loss frequency, it’s not likely to happen in the near term as companies focus on strengthening their existing products.

The report detailed how, in recent years, the most successful insurers have invested “significant resources” in technology to improve underwriting and pricing tools.

“Insurtech in both the auto and homeowners markets will continue to grow, as insurers focus on more effective and efficient ways to reach customers,” the report said. “Mobile applications for submitting claims reviews, aerial imagery from drones, and artificial intelligence to support online text and voice chats when generating quotes became a lifeline for many policyholders during the pandemic.

“By leveraging propriety underwriting models and more user-friendly technology platforms, leading carriers have been able to customize and better price match to risk.”

Earlier this week, Insurity, which provides cloud-based software and analytics for insurers, said companies using its artificial intelligence (AI) programs have reported a 75% reduction in average support time.

“The always-on, AI-powered support suite ensures 24/7 availability, enabling policyholders to access instant support through their preferred communication channels,” Insurity said in a press release. “This move is particularly advantageous for insurers navigating spikes in claims after natural disasters or major events.”

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