S&P: Auto Insurance Proves to Be a Stable Sector
15 June 1999
S&P: Auto Insurance Proves to Be a Stable Sector
NEW YORK--Standard & Poor's--June 14, 1999-- Competition is heating up in the auto insurance sector, with established players aiming for higher growth rates and new market entrants attempting to carve out their own niches, says a Standard & Poor's report on the auto insurance sector released today. Continued strong capitalization in the industry supports a stable ratings outlook, the report says.The full report is available on Standard & Poor's Web site at www.standardandpoors.com/ratings/insurance. To access the report from the main page, select Business Sector Reports.
The industry is expanding, as other insurers diversify their business by entering the auto line, and new players (attracted by low capital needs and a short liability tail) vie with major insurers for market share. These larger companies will benefit from economies of scale, which will increase pressure on smaller providers to reduce costs, according to Standard & Poor's. A list of the 100 largest personal auto insurers is included with the report.
Higher auto sales in the U.S. have brought an aggregate dollar increase in auto premiums. Insurers have also been able to hinder losses over the past few years for several reasons, such as airbags, seatbelt and drunk driving laws, and negotiations between insurers and auto body shops. There have also been new trends in distribution, as some companies are turning to over-the-phone sales as well as Internet-based transactions. This involves the risk of alienating the existing agent force, so some insurers have implemented different methods according to region, or simply decided to offer the customer a choice of buying direct or through an independent agent.
As the popularity of direct sales rises, it will become increasingly important for the consumer to research the ratings of a company, for there will not be an agent to rely upon for assistance in decision-making. While Standard & Poor's sees a stable ratings picture for auto insurers (as a result of strong industry capitalization), individual players who cannot effectively handle increased competition may run the risk of a downgrade. Standard & Poor's rates insurers based on current and prospective positioning; a triple-'B' grade or higher indicates a 'secure' company, while those below triple-'B' are considered 'vulnerable'.
Standard & Poor's, a division of The McGraw-Hill Companies, is the world's leading provider of financial information, including credit ratings and risk analysis. Standard & Poor's letter-grade rating symbols have long been respected as independent measures of an insurer's financial strength. A complete list of ratings on more than 4,000 insurance companies in approximately 70 countries is available at www.standardandpoors.com/ratings/insurance. -- CreditWire
