Frequency remained down 24-26% so far this year compared to 2019.
On November 7, Berkshire Hathaway Inc. reported its third quarter earnings, including details about its GEICO subsidiary, the second largest auto insurer in the U.S. According to the company’s quarterly report, GEICO generated a pre-tax underwriting earnings of $276 million. The company reported significant declines in losses and loss adjustment expenses attributable to lower claims frequencies from the effects of less driving by policyholders during the COVID-19 pandemic. Offsetting the lower costs, however, the effects of the GEICO Giveback program significantly impacted earned premiums and the program will continue through the fourth quarter. As a result, GEICO could experience pre-tax underwriting losses if claims frequencies increase over the same period, offsetting a portion of the pre-tax underwriting earnings generated in the first nine months of 2020.
Below is a summary of GEICO’s underwriting results follows (dollars in millions):
Premiums written decreased 10.3% in the third quarter and 4.2% in the first nine months of 2020 compared to 2019. The GEICO Giveback program provides for a 15% premium credit to all voluntary auto and motorcycle policies renewing between April 8, 2020 and October 7, 2020, as well as to any new policies written during the same period.
The Giveback program reduced premiums written in the first nine months of 2020 by approximately $2.8 billion. Premiums earned decreased 5.1% in the third quarter and were relatively unchanged in the first nine months of 2020 compared to 2019, which included reductions of approximately $1.0 billion in the third quarter and $1.3 billion in the first nine months attributable to the GEICO Giveback program. Premiums earned will very likely decline in the fourth quarter even if policies-in-force and exposures increase.
Voluntary auto policies-in-force grew 5.4% in the first nine months of 2020 compared to 2019. The increase resulted from a 9.1% decrease in lost policies and a 3.4% decrease in new business sales. In response to the COVID-19 pandemic, GEICO paused cancellations of insurance policies for non-payment through the end of May 2020. During the third quarter, policy cancellations for non-payment resumed leading to an 18.3% increase in lost policies for the third quarter as compared to 2019.
Losses and loss adjustment expenses decreased $486 million (6.6%) in the third quarter and $1.9 billion (9.2%) in the first nine months of 2020 compared to 2019. GEICO’s ratio of losses and loss adjustment expenses to premiums earned (the “loss ratio”) decreased 1.3 percentage points in the third quarter and 7.9 percentage points in the first nine months of 2020 compared to 2019. The decreases in the loss ratio reflected declines in claims frequencies, partly offset by increases in claims severities and the impact of lower premiums earned attributable to the GEICO Giveback program.
Claims frequencies in the first nine months of 2020 were lower for property damage, bodily injury and personal injury protection coverages (twenty-nine to thirty-one percent range) and collision coverage (twenty-four to twenty-six percent range) compared to 2019. Average claims severities in the first nine months of 2020 were higher for property damage coverage (ten to twelve percent range), collision coverage (seven to nine percent range) and bodily injury coverage (ten to twelve percent range). GEICO’s loss and loss adjustment expenses in the first nine months of 2020 and 2019 included relatively insignificant reductions in the ultimate loss estimates for prior year’s loss events.
Underwriting expenses in the first nine months of 2020 increased $359 million (9.5%) compared to 2019. GEICO’s expense ratio in the first nine months of 2020 (underwriting expenses to premiums earned) increased 1.3 percentage points compared to 2019, of which 0.7 percentage points was attributable to the decline in earned premiums from the GEICO Giveback program. The increase in underwriting expenses reflected higher employee-related and technology costs partly offset by lower premium and state taxes.
Article from: CollisionWeek, https://collisionweek.com/2020/11/09/geico-reports-collision-claims-severity-7-9-first-nine-months-2020/?fbclid=IwAR0I-Tw_nFRjg_7Q8gejBm8dyasS24BpU0t_-tuBbIGM0R7j7FDRzbzo9gs