After two years of challenges for personal auto insurers, rating agency AM Best delivered a positive assessment: U.S. personal auto insurers are the furthest ahead when it comes to innovation.

Personal auto insurers’ innovative processes include automated claims management and the use of data to automate underwriting, according to a new AM Best report, titled “Highly Innovative Personal Auto Carriers Have Significant Competitive Edge,” in which analysts delve into how AM Best innovation scores line up with growth, profitability and overall rating agency actions.

Personal auto insurers have the highest average innovation scores among property/casualty lines of business, the report says.

AM Best has been scoring and assessing insurers’ innovation efforts since 2020. (Read sidebar articles for more information about the scoring process.)

“Personal auto as a line of business is well suited to innovation,” said Helen Andersen, an AM Best industry research analyst, in a statement about the report. Personal auto carriers “deal with large homogenous risks, allowing initiatives to be scaled and replicated relatively easily,” she said.

But not all the personal lines insurers fare as well as those that AM Best assigned to the “Leader” category—the highest Innovation score assessment—when it comes to growth and market share.

In fact, insurers writing primarily personal auto that hold the “Leader” designation have seen average growth in net written premiums of 13.3 percent, while the growth percentage for the same period of the AM Best’s personal auto insurer’s composite was 5.5 percent.

AM Best translates innovation scores into five innovation capability assessment categories: Leader, Prominent, Significant, Moderate and Minimal.

According to the report, lower innovation scores of Minimal and Moderate “are overrepresented” among 18 personal auto carriers that AM Best downgraded in 2023. No insurers assessed as Leader were downgraded. While just over 35 percent of personal auto insurers have Moderate assessments, two-thirds of those whose ratings were downgraded have an innovation assessment of Moderate.

The report also presents information on relative growth rates and combined ratios by innovation category across the U.S. P/C industry, revealing the growth is significantly higher for innovators, and combined ratios are lower—driven by expense ratio differences. Innovative companies continue to slightly higher loss ratios, a finding that AM Best has published in prior years. (Related article, “Innovating to Control Costs: Carriers Seeking Top-Line Growth Amid Bottom-Line Pressures“)