In this piece, we will take a look at the best car insurance stocks to buy as car insurance rates skyrocketing.
Ever since the coronavirus pandemic, a wide variety of industries, ranging from technology to energy and finance have been dealing with a changed economic environment. When it comes to auto insurance, the immediate aftermath of the pandemic’s outbreak was a boon for auto insurance companies. It saw them bathe in money as the number of drivers on the roads significantly dropped and they had fewer claims to process. Data from the Consumer Federation of America shows that in 2020, auto insurers earned a whopping $29 billion in profit at a time when their premium claims percentage dropped to 56.1% from the average of 67.4% between 2016 and 2019.
Yet, just like their peers in the homeowner insurance industry would find out, the rising inflation after the pandemic made the next year one of the hardest for the auto insurance industry. Along with economic inflation, ‘social inflation’ which is a term that the industry uses to describe a harsh view of companies among jurors, would disrupt the auto insurance industry. After the pandemic, used car prices jumped by as much as 40%, and since insurance premium increases require regulator approval, the companies could not increase their prices to keep pace.
In fact, in 2021, all of the top auto insurers in the US saw their loss ratios rise. A loss ratio measures the ratio of payouts to premiums earned and a lower ratio is naturally preferred. According to the S&P, some insurers whose ratios were as low as 49.8% and 51.7% in 2020 saw these jump by tens of percentage points to 60.7% and 67.3%. For some insurers, these were the worst ratios since at least 2017. As they struggled to raise premiums, with some regions such as California having two year moratoriums on rate increases, 2022 ended up being the worst year on record for the auto insurance industry since 2000. Another key metric to evaluate insurance companies is the combined ratio, which adds payouts to expenses and divides them by premiums. A value lower than 100 indicates profitability and vice versa.
As per the S&P’s data, the net combined ratio for US private auto insurers was 111.8% in 2022 as it crossed the 2000 high of 110.4% by more than a percentage point. Their loss ratio also further deteriorated. From its 2021 value of 67.6%, the loss ratio jumped by 12 percentage points to sit at 79.8% the next year. Auto insurers responded to this challenge by cutting their costs, as their expense ratio dropped to 21.7% in 2022.
Just as the auto insurance industry’s fate rapidly changed between 2020 and 2021/2022, the same happened in 2023. According to the Labor Department’s data for May 2023, auto insurance premiums shot up by 17.1% over the past 12 months, with rising medical bills, claims, and repair costs coupled with a dropping auto inventory contributing to the jump. This wasn’t the end for soaring auto insurance costs, with the March 2024 Consumer Price Index showing that car insurance premiums were 22.2% more expensive in America. This was more than 6x the inflation rate of 3.5%, and the pricier auto insurance costs were due to the usual culprits of repair and repair and maintenance costs. These surged by 11.6% and 8.2%, respectively, during the same time period.
At the same time, since the world opened itself up again after the coronavirus pandemic, car accidents have also grown. These are also to blame for high car insurance costs since more accidents mean greater payout frequency, and as the insurers would argue, social inflation contributes to higher payout severity as well. These trends were already in play last year, with crashes and claim severity jumping by 14% and 36% in July 2023 according to the American Property Casualty Insurance Association (APCIA).
In addition to inflation, accidents, and severity, other causes are also responsible for soaring auto insurance costs in America. In a report that covered 34 cities, the Council on Criminal Justice revealed that car thefts had grown by 29%. These figures are corroborated by the National Crime Insurance Bureau, which believes that 2023 was the second consecutive year for more than one million car thefts in the US. Finally, auto insurers, like homeowner insurers, are also suffering from more climate catastrophes. Hurricanes, floods, and tornadoes all lead to property damage, and if they increase in frequency, then auto insurers will naturally increase their premiums to create room for the rising payouts.
With these details in mind, let’s take a look at the top car insurance stocks to buy.
Our Methodology
For our list of the best auto insurance stocks, we ranked property and casualty, diversified, and specialty insurance companies by the number of hedge funds that had bought their shares in Q1 2024. The specialty and diversified firms were chosen to ensure completeness, and each firm was analyzed to ensure that it offered auto insurance.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10. Assurant, Inc. (NYSE:AIZ)
Number of Hedge Fund Investors in Q1 2024: 26
Assurant, Inc. (NYSE:AIZ) is a Georgia based insurance company that provides auto insurance through its products such as Assurant Vehicle Care. Its housing insurance division is larger than the auto insurance division, which means that the stock is tied more to its performance. Key factors that influence Assurant, Inc. (NYSE:AIZ)’s share price include catastrophic events in the regions in which it provides home insurance. However, even though Assurant, Inc. (NYSE:AIZ) has a sizeable home insurance division, its auto insurance business is also larger than several pure play auto insurance companies. The auto insurance division provides coverage to more than 53 million vehicles worldwide, and Assurant, Inc. (NYSE:AIZ) has been providing coverage for cars for more than 50 years. Additionally, easing global inflationary pressures for vehicle repairs should prove beneficial for the stock. Similarly, lower interest rates that lead to more car sales can translate into higher policy sales for Assurant, Inc. (NYSE:AIZ).
Assurant, Inc. (NYSE:AIZ) has also been increasing its auto policy rates which could lead to lower coverage ratios if inflation falls. The firm’s management commented on the auto business during the Q1 2024 earnings call where it shared:
“Moving to global automotive, similar to others in the industry first quarter results reflected persistent inflation impacts to vehicle parts and labor repair costs. We’ve continued to take actions to address elevated inflation including implementing additional rate increases in the first quarter that build upon those taken over the past 18 months while also strengthening and enhancing our claims adjudication process.
For 2024, we expect auto earnings to be flat. Investment income growth and disciplined expense management efforts are expected to be offset by continued claims inflation. We remain confident in the long-term growth prospects of our auto business. Over the next several years, we expect rate actions to provide a tailwind for the business with the pace and timing of earnings growth dependent on broader market trends”
9. The Hartford Financial Services Group, Inc. (NYSE:HIG)
Number of Hedge Fund Investors in Q1 2024: 26
The Hartford Financial Services Group, Inc. (NYSE:HIG) is a sizeable and diversified insurance company that provides automobile insurance among other businesses such as casualty and workers’ compensation. Like other insurance companies, The Hartford Financial Services Group, Inc. (NYSE:HIG) benefits when its higher premiums allow it to counter inflationary trends and rising claims even when prices fall. Similarly, a diversified business model allows The Hartford Financial Services Group, Inc. (NYSE:HIG) to easily stop coverage in areas where it is suffering from high claims due to natural disasters. Its shares are up by 33% year to date, driven by the fact that The Hartford Financial Services Group, Inc. (NYSE:HIG) has benefited from high premium increases. A diversified business also means that the stock can benefit from an uptick in any one business area. A large reason behind The Hartford Financial Services Group, Inc. (NYSE:HIG)’s year to date share price growth has been an acceleration in its insurance written to businesses. During Q2, this segment had a top line growth of 14% and a combined ratio of 87.4 – for the best of both worlds.
However, The Hartford Financial Services Group, Inc. (NYSE:HIG)’s auto insurance business has struggled as of late. Here’s what was on management’s mind during the Q2 2024 earnings call:
“In auto, we achieved written pricing increases of 23.5% and earned pricing increases of 22.1%. In homeowners, written pricing increases were 14.9% for the quarter and 14.6% on an earned basis. In Personal Lines, the underlying combined ratio of 96.7 improved by five points from the prior year. Homeowners had another strong quarter with an underlying combined ratio of 77.8. We are very pleased with the improvement we are seeing in our auto results.
Through June 30th, our underlying combined ratio of 104.7 was in line with our expectations and is 3.8 points lower than the prior year period, almost entirely due to improvement in the loss ratio. We remain on track to achieve the five to six-point full-year improvement in the auto underlying loss ratio as we have previously discussed.”
8. Kemper Corporation (NYSE:KMPR)
Number of Hedge Fund Investors in Q1 2024: 28
Kemper Corporation (NYSE:KMPR) is a Chicago based company that provides commercial and personal insurance. Its auto insurance products include both specialty and preferred insurance lines. This makes Kemper Corporation (NYSE:KMPR) one of the few auto insurance companies that provides specialty auto coverage through products for people without licenses, suspended licenses, and reconditioned vehicles. While the firm benefits from a niche market that allows it to charge higher rates, the specialty auto lines also mean that Kemper Corporation (NYSE:KMPR) is vulnerable to more frequent and more severe payouts than its auto peers. The firm also offers commercial auto insurance products for business vehicle fleets, which is an industry with greater revenue opportunities. Kemper Corporation (NYSE:KMPR) is currently exiting from its property and casualty insurance market, but it plans to keep operating in the specialty auto market. This should help it reduce costs and allow it to effectively redeploy capital in more profitable areas. The firm’s specialty P&C and commercial auto business are quite profitable too, as they had combined ratios of 98% and 93.2% in Q4 2023.
During the quarter’s earnings call, Kemper Corporation (NYSE:KMPR)’s management shared more details about its commercial business when it shared:
“Our commercial vehicle business remains a source of strength, producing an underlying combined ratio of 93.2%. We remain confident about our ability to generate long-term value in this area. Turning to production. Consistent with last quarter, we continue to observe hard market conditions, especially in California. As we renewed policies at higher rates, persistency remained in line with prior periods creating favorable premium retention. As Joe mentioned, a return to underwriting profitability is allowing us to shift our 2024 focus to what he described as the rebalancing phase. In anticipation of this shift, we selectively wrote a modest amount of incremental new business to test new customer cohort buying and claim behavior. It wasn’t a material amount for the quarter, but a good start towards re-expanding new business heading into 2024.”
7. Kinsale Capital Group, Inc. (NYSE:KNSL)
Number of Hedge Fund Investors in Q1 2024: 30
Kinsale Capital Group, Inc. (NYSE:KNSL) is a specialty insurance line provider that covers policies that are typically too risky for most other insurers. This provides it with a niche market that is served by fewer companies and allows Kinsale Capital Group, Inc. (NYSE:KNSL) to charge high premiums and operate in a market with fewer competitors. For its auto insurance products, the firm focuses primarily on offering insurance for commercial customers. These include costly coverage options such as tractor trailer fleets, insurance offered to car dealers and repair shops from their operations, and general liability insurance for truckers. While these programs allow Kinsale Capital Group, Inc. (NYSE:KNSL) to compete with few firms that offer similar products, it also leaves it vulnerable to severe claims even if they are limited. A key advantage for the firm is its technology model, which enables customers to get coverage quotes within a day which allows it to score deals with customers that are looking for quick coverage.
Giverny Capital mentioned Kinsale Capital Group, Inc. (NYSE:KNSL) in its Q4 2023 investor letter. Here is what the firm said:
“Kinsale was founded in 2009 by Mike Kehoe, an industry veteran who remains at the helm. Mike built Kinsale on a state-of-the-art technology platform that allows the company to provide quotes to most callers within a couple of hours. Many competitors need several days to scour their databases and assemble the information required to offer a quote. Kinsale’s expense ratio is about 21%, far below larger competitors like Markel. Insurance is a commodity product; nearly every business policy is put out to brokers for bid. In the end, the insurer with the lowest cost of operation is going to win. We paid a high price for Kinsale relative to its current earnings, but I believe the company can grow at a mid-to-high teens rate for a long time. Currently, it has a 1.5% market share in E&S.”
6. W. R. Berkley Corporation (NYSE:WRB)
Number of Hedge Fund Investors in Q1 2024: 36
W. R. Berkley Corporation (NYSE:WRB) is one of the biggest commercial insurance underwriters in America. Its scale also allows it to target the commercial auto insurance industry through a diverse package that even provides medical coverage to drivers regardless of fault. W. R. Berkley Corporation (NYSE:WRB)’s shares are up by an impressive 14% year to date as it benefits from the fall through effects of rising premiums. During its second quarter, W. R. Berkley Corporation (NYSE:WRB)’s revenue jumped by 15% annually, with the firm benefiting from rising bond yields that contributed to its investment income jumping by 52%. W. R. Berkley Corporation (NYSE:WRB)’s pure play focus on commercial auto insurance means that it can benefit from stable revenues. At the same time, this also leaves it quite vulnerable to economic downturns as businesses slow their fleet growth during these times which can lead to lower new additions or upgrades to existing plans. Additionally, commercial auto is quite vulnerable to social inflation due to the large payouts from truck and other large vehicle accidents.
W. R. Berkley Corporation (NYSE:WRB)’s management provided a rather simple explanation for the riskiness of commercial auto during its Q2 2024 earnings call where it shared:
“There’s no evidence that we see at this time of the issues that we’re seeing in umbrella, if you will, spilling over to the other product lines or the issues that we’re seeing specifically in auto, I should say, spreading to the other product lines. So that differently, we feel quite comfortable at the moment with the GL. As far as the auto goes, it’s a challenging movement. I mean, you drive down I-95 or whatever highway you go down and every other billboard is plaintiff’s attorney with their phone number in case a truck cuts you off. And from our perspective, the trend is meaningful, and we need to make sure that we keep up with it. And we want to make sure that the old years are in a reasonable place. And that obviously, as mentioned a few moments ago, has implications, still relatively modest implications, for umbrella.”
5. The Travelers Companies, Inc. (NYSE:TRV)
Number of Hedge Fund Investors in Q1 2024: 40
The Travelers Companies, Inc. (NYSE:TRV) is another mega American insurance provider. Unlike some other auto insurance companies on our list which operate exclusively in the commercial auto insurance market, The Travelers Companies, Inc. (NYSE:TRV) provides commercial and personal lines. This provides it with the key advantage of diversification, particularly since the prevailing sentiment in the insurance industry is that commercial auto insurance suffers from high social inflation because of costly accidents. Additionally, since it has other non auto business divisions too, the firm can suffer from catastrophes like technology disruptions and climate driven homeowner claims. Financially, it can impact The Travelers Companies, Inc. (NYSE:TRV)’s combined ratio to a greater degree than disruptions in the auto industry only.
The Travelers Companies, Inc. (NYSE:TRV)’s management shared details about its auto products during the Q2 2024 earnings call where it shared:
“In domestic automobile, retention of 82% remains strong. Renewal premium change of 15.8% continued to moderate as anticipated. Auto renewal premium change will continue to gradually decline, reflecting the improved profitability on the line. While new business premiums were higher than the prior year quarter in many states, new business premium in aggregate was down slightly relative to the second quarter of last year. This is the result of our continued efforts to manage auto profitability in a few remaining challenge states, as well as the cross-line impact resulting from some of our property actions, particularly in high-risk cat areas.”
4. Chubb Limited (NYSE:CB)
Number of Hedge Fund Investors in Q1 2024: 53
Chubb Limited (NYSE:CB) provides commercial and auto insurance products. Due to its scale, it operates in several insurance markets such as commercial insurance, cyber insurance, medical insurance, and others. The diversification offers Chubb Limited (NYSE:CB) a double edged sword since while it can benefit from rate increases in some sectors to offset rising costs and payouts in others, a presence in risky and changing markets like property leaves it vulnerable to large payouts too. Additionally, Chubb Limited (NYSE:CB)’s scale means that it has to offer and earn payouts from policies in scale if it is to keep costs low. An economic slowdown can affect business areas such as commercial auto insurance, and leave Chubb Limited (NYSE:CB)’s management struggling with low margins. The shares are up 19% year to date and could see tailwinds once interest rates start to drop.
Chubb Limited (NYSE:CB) is aware of these liabilities and it is restructuring some of its business to manage auto liabilities better. Here is what management shared during the Q2 2024 earnings call:
“No, casualty is growing, and it’s growing in the areas that we think we should be growing. And then, we have some areas, remember, in large account where we have been restructuring, in troubled classes and increasing retentions and we have accounts we’ve gotten off of or who have left us because of change of terms and all of that, it was worth about $50 million in the quarter. And that will run its string. It’s particularly auto liability related. And — but other than that, certain classes grew, some stayed flat, but overall casualty was up.”
3. The Allstate Corporation (NYSE:ALL)
Number of Hedge Fund Investors in Q1 2024: 59
The Allstate Corporation (NYSE:ALL) is one of the most diversified auto insurance companies on our list. Its policies cover a wide variety of vehicles including cars, off road vehicles, recreational vehicles, boats, and snowmobiles. Due to coverage of vehicles such as boats and snowmobiles, The Allstate Corporation (NYSE:ALL) is exposed to climate related risk, and like other auto insurers, it also took a beating in the auto industry in 2022 with a painful combined ratio of 110. This underperformance is also key to The Allstate Corporation (NYSE:ALL)’s auto insurance hypothesis moving forward. Back then, management responded by sharing a four tiered approach of selective underwriting, improved claims practices, premium increases, and expense reduction to bring this division back to profitability. The plan appears to be working since The Allstate Corporation (NYSE:ALL) reported an improved auto insurance combined ratio of 96 during Q1 2024 for a sequential reduction of 8.4 points. Business diversification also means that the firm can bundle its homeowners and auto insurance products.
The Allstate Corporation (NYSE:ALL)’s shared the latest details for its auto insurance improvement during the Q2 2024 earnings call when it revealed:
“Given the successful execution of the Auto Insurance profit improvement plan, investments in growth will made in Allstate that offer attractive return opportunities.
These higher growth investments led to a 17% increase in Personal Auto new business applications in the second quarter, as you can see at the top of the chart on the left. The green bars show the components of that growth in new policy sales. The first two bars reflect the drivers of the 23% increase in new business volume in the Allstate brand. Higher productivity per exclusive agents drove a 9% new business increase compared to prior year and advertising investments and enhancements to direct operations resulted in a 92% increase in the direct channel compared to the prior year. The last two green bars reflect national general growth in both the non-standard auto business and higher sales volume from the Custom360 middle market offering that we continue to roll out.
On the right, you can see that total protection auto policies enforced decreased by 1.6% compared to prior year as the Allstate brand decrease was partially offset by growth at National General. Allstate brand auto policies in force decreased by 4.5% compared to prior year as policies lost from customer defections more than offset the increase in new policy sales.”
2. The Progressive Corporation (NYSE:PGR)
Number of Hedge Fund Investors in Q1 2024: 85
The Progressive Corporation (NYSE:PGR) offers commercial and personal auto insurance products, along with others such as homeowners insurance. Like other firms of its kind, this means that the firm benefits from being able to offer auto insurance products to its homeowner customers. Over the past couple of years, The Progressive Corporation (NYSE:PGR) has focused quite a bit on this strategy, after it rebranded American Strategic Insurance (ASI) to Progressive Home in 2017 after acquiring ASI in 2015. Through the rebranding, The Progressive Corporation (NYSE:PGR) aims to expand its auto coverage to its homeowner base. The firm has also been increasing its visibility by allowing auto insurance customers to buy products from other carriers by visiting its website.
Artisan Partners mentioned The Progressive Corporation (NYSE:PGR) in its Q1 2024 investor letter. Here is what the firm said:
“Progressive Insurance shares rose 30% during the quarter. After a difficult start to 2023, the company quickly adapted and finished the year with impressive growth in premiums and underwriting profits. In Q4 2023, it managed to grow its customer base even as it raised rates and improved its underwriting ratios—a trifecta that isn’t often seen in the insurance industry. This performance has continued, which should set the stage for another year of good results in 2024. Perhaps most importantly, it has been able to navigate the environment far better than its peers, many of whom are still reporting sub-par underwriting performance. Progressive has consistently gained market share in the personal auto market over our ownership period and now commands close to 15% of the total market. Its shares are no longer a bargain, but we continue to hold them due to the high quality of this business and the advantaged nature of its low-cost insurance franchise.”
1. Berkshire Hathaway Inc. (NYSE:BRK-B)
Number of Hedge Fund Investors in Q1 2024: 119
Berkshire Hathaway Inc. (NYSE:BRK-B) is the investment conglomerate headed by Warren Buffett. While typically thought of as an investment company or hedge fund, Berkshire Hathaway Inc. (NYSE:BRK-B)’s biggest business is its insurance business. It earned $24.6 billion in total insurance revenue during Q1 2024, which accounted for 27% of Berkshire Hathaway Inc. (NYSE:BRK-B)’s total revenue of $84.6 billion. As is characteristic of a business of this size, the firm offers both commercial and personal auto insurance products. These are separated across business divisions, with the larger GEICO business providing personal and the Berkshire Hathaway Primary Group offering commercial automobile insurance. Berkshire Hathaway Inc. (NYSE:BRK-B)’s GEICO division operates an insurance agency that offers existing auto customers homeowners insurance products. GEICO is one of America’s largest auto insurance providers too, which lends it stability particularly against severe claims.
Berkshire Hathaway Inc. (NYSE:BRK-B)’s management commented on its auto insurance in its first quarter earnings report where it shared:
Premiums written increased $736 million (7.3%) in the first quarter of 2024 compared to 2023, reflecting higher average premiums per auto policy (9.8%) due to rate increases, partially offset by a 6.6% decrease in policies-in-force over the past year. However, the rate of decline in policies-in-force slowed in the first quarter of 2024, driven by increased new business and higher retention rates. Premiums earned increased $608 million (6.3%) in the first quarter of 2024 compared to 2023.
Losses and loss adjustment expenses declined $578 million (7.2%) in the first quarter of 2024 compared to 2023. GEICO’s loss ratio (losses and loss adjustment expenses to premiums earned) was 72.5% in the first quarter of 2024, a decrease of 10.5 percentage points compared to 2023. The loss ratio decline reflected the impact of higher average premiums per auto policy and lower claims frequencies, partially offset by increases in average claims severities and less favorable development of prior accident years’ claims estimates.
BRK-B is the unsurprising top hedge fund insurance stock pick. But our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BRK-B but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None.