US P&C insurers cut expenses following deteriorating personal lines results: AM Best

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Global credit ratings agency AM Best, has highlighted how despite the ongoing pressures from catastrophe-related and secondary peril losses, insurance firms within the US property & casualty (P&C) industry have been ablet to bolster their bottom-line financial results by cutting underwriting expenses.

The US P&C industry segment has cut 2.6 percentage points from its underwriting expense ratio over the past decade, reducing the figure to 25.7 in 2022. According to the agency, the drop in overall expenses comes even as commission and brokerage expenses have grown.

However, insurers have shared some of the expense savings with agents and brokers, both of whom are receiving an additional 1% of direct premiums written compared with 10 years ago.

At the same time, savings on general expenses, as well as other acquisition expenses, have also been passed along to agents and brokers too.

Best, also highlighted how commission and brokerage expenses were relatively flat for personal lines business, reflecting the state of the personal lines market.

Christopher Graham, senior industry research analyst, AM Best, commented: “In contrast, the commercial lines have improved significantly and performed better than the P/C industry overall. Insurers have been able to cut their expense ratios in taxes, licensing, and fees, which they have also passed to the agents and brokers.”

In addition, a comparison of commission and brokerage fees paid shows that insurers pay more of these toward homeowners’ insurance than on either personal auto or workers’ compensation.

The agency also noted that spending among the 20 largest insurance advertisers was down in 2022, amid deteriorating results in the private passenger auto segment.

Best suggests that insurers may not find it beneficial to advertise for products that simply cannot generate an adequate return-on-equity.

Further, advertising spending among the top 20 private passenger auto writers declined by 10.3% to slightly less than $7.4 billion in 2022.

The agency stated that spending in this regard also remains concentrated with the top five insurance groups accounting for two-thirds of all industry advertising.

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