Insurance providers will benefit from more car purchases and higher interest rates
Los Angeles, CA (PRWEB) February 10, 2012
Over the five years to 2012, IBISWorld estimates that revenue for the Automobile Insurance industry will fall at an average annual rate of 0.9% to $178.3 billion. During that time, growth has been hampered by a soft pricing cycle that began in 2005. The soft pricing cycle, which reduces the amount that an insurer is able to generate from policies, caused the average expenditure for auto insurance to fall from $843 in 2004 to $785 in 2009, according to the Insurance Information Institute. Furthermore, the Great Recession compounded the already soft pricing cycle and hampered growth by hurting investment returns. Luckily for industry operators, this trend is expected to slowly reverse as the economy turns toward recovery. Consequently, IBISWorld estimates that industry revenue will increase 3.9% in 2012.
Industry firms provide a variety of consumer auto-related insurance products, including collision insurance, property damage liability insurance and bodily injury insurance. The industry also provides commercial vehicle insurance. Insurers pool premiums (i.e. funds) from policyholders to pay for losses that some individual policyholders may incur, making the industry an indispensable part of risk management for consumers. In general, demand for automobile insurance varies little from year to year, because drivers must have insurance to operate their vehicles and be protected from potential liabilities and losses. Consequently, the Automobile Insurance industry is often compared to a utility because demand does not fluctuate with the economic cycle. In fact, the majority of industry revenue is generated through policy renewals, and the largest firms have renewal rates that are in the ballpark of 90.0%.
In the five years to 2017, IBISWorld estimates that industry revenue will experience growth. Operators will likely benefit from a hardening of the insurance market, which will alleviate pricing pressures. Furthermore, the investment income that companies receive will improve as the stock market recovers from the recession. As more consumers return to car lots, the number of vehicle registrations and the total insurable value of the US auto fleet will rise. This factor will boost industry revenue and profit margins. Many of the industry's largest firms, including State Farm Insurance Companies and Allstate Insurance Company, offer a wide range of property, casualty and direct insurance products. Concentration has marginally increased during the past five years as a result of industry consolidation. In the five years to 2012, IBISWorld estimates that the number of firms operating in the industry has declined at an average of 1.8% annually to 1,988. During that time, the largest industry firms have grown organically and through acquisition. For example, major insurance firm AIG sold its auto segment to Farmers after it started experiencing problems related to its housing business. Other large operators have also grown through the acquisition of smaller, regional firms and the development of online platforms, allowing consumers to have auto insurance in minutes. During the next five years, continued consolidation will contribute to the ongoing dominance of the largest automotive insurers.
For more information visit IBISWorld’s Automobile Insurance in the US industry page
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This industry underwrites (i.e. assuming the risk and assigning premiums) auto insurance policies. Car insurance provides financial protection against physical damage to automobiles and bodily injuries resulting from traffic collisions. Automobile insurance can also protect against resulting liability.
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