The U.S. 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 Best’s Special Report, titled “P/C Insurers Cut Expenses in the Wake of Deteriorating Personal Lines Results,” the drop in overall expenses comes even as commission and brokerage expenses have grown.
Insurers have shared some of the expense savings with agents and brokers, which are receiving an additional 1% of direct premiums written compared with 10 years ago. Savings on general expenses and other acquisition expenses have also been passed along to agents and brokers.
However, the report also notes that commission and brokerage expenses were relatively flat for personal lines business, reflecting the state of the personal lines market.
“In contrast, the commercial lines have improved significantly and performed better than the P/C industry overall,” said Christopher Graham, senior industry research analyst, AM Best. “Insurers have been able to cut their expense ratios in taxes, licensing, and fees, which they have also passed to the agents and brokers.”
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.
Spending among the 20 largest insurance advertisers was down in 2022, amid deteriorating results in the private passenger auto segment. The report suggests that insurers may not find it beneficial to advertise for products that can’t generate an adequate return-on-equity. Advertising spending among the top 20 private passenger auto writers declined by 10.3% to slightly less than $7.4 billion in 2022. Spending in this regard also remains concentrated with the top five insurance groups accounting for two-thirds of all industry advertising.