Uptick in U.S. Auto Insurance Risk Seen

Credit and information management firm TransUnion released end of third-quarter results of its proprietary Auto Insurance Risk Index, noting a slight increase of 0.03 percent after four consecutive quarterly declines. The index now registers 98.85, three basis points higher than Q2 2011; 31 basis points lower than a year ago at this time; and 73 basis points lower than its recessionary peak in Q2 2009.

TransUnion’s Auto Insurance Risk Index was developed as a risk barometer specifically for the auto insurance industry and is designed to illustrate the relative expected insurance loss ratio for market segments throughout the country.

"When looking at the Auto Insurance Risk Index on a state-by-state basis, it appears that the level of auto insurance risk is transitioning toward a period of higher risk," said Chet Wiermanski, TransUnion's global chief scientist. "While a 0.03 percent increase in the index at the national level may seem minor; two-thirds, or 34, states experienced an increase over the previous quarter. This is considerable and suggests that a fundamental change in the level of auto insurance risk is beginning to take place."

TransUnion offers, as a point of reference, Q2 2011 results, which revealed that every state, except Vermont experienced a decline in the index. On a year-over-year basis, 47 states and the District of Columbia experienced a decrease, with Oregon having the largest decline (-55 basis points), followed by New York (-54 basis points) and Montana (-50 basis points).

The key factors in the index are TransUnion's insurance risk models, which are influenced by the length and stability of responsible credit performance. Benchmarked to the U.S. national average of 100 as of March 31, 2001, the Auto Insurance Risk Index helps to compare risk levels across geographies and demographic segments. For example, a state with an index of 110 is 10 percent riskier than a state with an index of 100, said the firm.

"Prior to this quarter, the decline in Auto Insurance Risk Index has been gradually decelerating, reflecting the rebound in the auto market as consumers began replacing an aging automobile fleet," said Kelley Buchanan executive vice president in TransUnion's insurance business unit. "Stable and relatively low-loss ratios that insurance carriers have experienced over the past several years may be coming to an end as consumers trade for newer automobiles, which generally are more expensive to repair," added Buchanan.

TransUnion's Insurance Risk Index - Statistics

• Montana continues to rank as the riskiest state with an index of 108.46 followed by Washington (104.55), Mississippi (102.50), Arkansas (101.29) and Maryland (101.19). States demonstrating the least risk from an auto insurance perspective were Alaska (94.48), Minnesota (94.79), Massachusetts (95.60), North Dakota (95.62) and Hawaii (95.79).

Analysis

"The number of new installment and auto loans reported to TransUnion are leading indicators of an increase in the Auto Insurance Risk Index," said Wiermanski. "As the auto market continues to rebound we expect to see the index gradually increase into 2012 and beyond, but not to the historically high levels experienced immediately prior to the last recession."