Most and Least Profitable Types of Property & Casualty Insurance (2024)

Most and Least Profitable Types of Property & Casualty Insurance (1)

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The average profitability of the property and casualty insurance industry was 7% over the past five years. This profitability measure is across all lines of property and casualty insurance during the five-year period from 2014-2019. In 2019, the property and casualty insurance industry had approximately $687.5 billion in direct written premiums.

In this analysis, AdvisorSmith examined 19 lines of property and casualty insurance to determine the most and least profitable types of P&C insurance over the past five years as measured by return on net worth. We also studied the levels of insurance profitability in all 50 states and the District of Columbia.

Most and Least Profitable Types of Insurance

Over the past five years, the average profitability of different lines of insurance varied markedly based upon the type of insurance. The average profitability of the 19 lines of insurance ranged from as low as 1% of net worth up to a maximum of 30.5% of net worth. These profitability figures are influenced by structural factors as well as cyclical economic conditions.

RankLineAverage Profitability % (2014-2019)201420152016201720182019 Written Premiums (2019, in millions)
1Mortgage Guaranty30.516.318.522.126.146.353.8$5,898
2Inland Marine20.219.718.619.214.72623.2$25,238
3Fire13.619.922.316.13.94.315.2$13,266
4Warranty12.711.311.413.613.914.611.1$2,783
5Workers Compensation9.87.58.48.29.51312.2$55,872
6Farmowners Multiple Peril86.113.511.4-0.98.19.5$4,507
7Homeowners Multiple Peril7.11313.111-2.3-1.99.8$101,303
8Private Passenger Auto Physical75.85.12.35.512.310.8$101,188
9Medical Professional Liability6.89.37.84.76.78.34$9,608
10Commercial Multiple Peril5.78.5106.70.42.95.8$43,023
11Commercial Auto Physical5.33.34.73.11.4811.2$10,271
12Products Liability4.94.64.44.97.526.1$3,907
13Private Passenger Auto Total4.44.32.70.73.77.57.2$251,559
14Allied Lines4.116.520.711.2-33.627.5$27,705
15Financial Guaranty3.611.1103.7-4.85.5-3.8$541
16Private Passenger Auto Liability3.33.71.802.95.65.8$150,371
17Commercial Auto Total1.73.120.71.41.41.5$43,037
18Accident and Health1.71.71-0.113.52.8$6,635
19Commercial Auto Liability131.50.21.40.2-0.3$32,766
Total All Lines78.47.95.83.97.38.6$687,525

The most profitable line of P&C insurance over the past five years was mortgage guaranty insurance. This line of insurance is relatively small, accounting for about $6 billion in written premiums in 2019, but profits in the line have been steadily rising, buoyed by rising home prices, low mortgage rates, and low rates of default.

The least profitable line of insurance over the past five years was commercial auto liability, with average profitability of only 1%. Underwriting losses in commercial auto liability have been higher than most other lines of insurance, leading to chronically low profitability in the line.

Most Profitable States for P&C Insurance Companies

The profitability of insurance varies widely by state, with the range of profitability being as low as 0.2%, up to a high of 17.7%. The most profitable states were states with relatively small populations and small insurance markets. The small size of these markets limits the number of competitors that are interested in offering products in these markets, which leads to higher pricing and profitability.

The top five states for insurance profitability were:

  1. Vermont, with average profitability of 17.7%
  2. Hawaii, with average profitability of 14.7%
  3. Alaska, with average profitability of 14.7%
  4. North Dakota, with average profitability of 14.0%
  5. New Hampshire, with average profitability of 13.0%
RankStateAverage Profitability % (2014-2019)201420152016201720182019Written Premiums (2019, in millions)
1Vermont17.714.215.41718.72119.8 $1,489
2Hawaii14.715.614.514.99.317.916.2 $2,660
3Alaska14.719.416.31310.311.118 $1,641
4North Dakota14.012.822.34.317.723.92.7 $2,573
5New Hampshire13.012.21112.910.614.516.6 $2,551
6Maine12.69.311.412.811.716.214.3 $2,434
7Kansas12.610.31412.911.61511.5 $6,883
8District of Columbia12.416.112.63.47.813.920.5 $2,001
9Oklahoma12.2137.910.212.316.613.3 $8,489
10Ohio12.112.611.310.812.516.68.6 $17,479
11Indiana10.79.91089.815.411.3 $11,824
12Tennessee10.610.69.44.68.215.415.4 $12,356
13Massachusetts10.310.6310.112.312.413.5 $15,968
14West Virginia10.312.811.85119.212.1 $3,133
15Virginia10.111.510.86.799.813 $14,561
16Oregon10.111.99.17.47.315.69.4 $7,568
17Wisconsin10.07.511.79.59.911.110.3 $11,049
18Delaware10.05.67.79.29.315.312.6 $2,884
19Connecticut9.99.68.49.910.49.511.6 $9,020
20Utah9.911.99.56.610.311.39.8 $5,244
21Mississippi9.97.610.47.99.413.210.7 $5,497
22Minnesota9.28.111.211.47.413.73.3 $12,214
23South Dakota9.09.514.715.611.513.9-11 $2,526
24Alabama8.89.410.166.67.612.9 $9,275
25Rhode Island8.59.80.98.311.38.712.1 $2,573
26Illinois8.48.28.38.58.711.15.8 $26,230
27Idaho8.39.58.79.23.67.311.7 $3,113
28Washington8.38.55.777.511.29.9 $13,386
29Missouri8.397.16.25.912.58.8 $12,388
30North Carolina8.112.710.96.410.6-3.111 $16,978
31Iowa8.0-5.3131310.13.513.8 $6,713
32Kentucky8.08.75.167.810.59.8 $7,953
33Arizona7.96.97.84.97.49.111.3 $12,108
34New Jersey7.67.46.16.88.68.48.1 $22,592
35Pennsylvania7.55.17.16.99.88.97.3 $25,799
36Arkansas7.59.95.81.411.38.77.6 $5,619
37Maryland7.48.46.26.786.38.6 $12,530
38New York7.17.96.16.17.77.97 $49,006
39Michigan6.73.47.15.56.96.810.7 $20,477
40South Carolina6.76.84.90.76.111.410.5 $10,468
41Louisiana6.710.99.3-8.79.4118.4 $12,230
42Wyoming6.710.115.35.3100-0.5 $1,261
43New Mexico5.99.55.33.84.73.98.2 $3,671
44Florida5.613.912.18.9-3.4-1.53.5 $55,288
45Nebraska4.9-10.313.94.13.615.32.5 $5,131
46California4.67.56.15.2-1.9-0.210.9 $82,478
47Texas3.810.16.4-1.2-10.412.75.1 $60,458
48Georgia3.44.84.10.82.42.95.4 $22,393
49Nevada3.47.43.31.14.1-1.66 $6,073
50Montana2.6-0.66.9-1.17.210.5-7.2 $2,574
51Colorado0.2-0.26.3-0.4-1.3-10.26.7 $13,843

Least Profitable States for P&C Insurance Companies

The least profitable states for insurance companies were a mix of small states along with the largest states in the country, including California, Texas, and Florida in the top 10. Large states had more competitive insurance markets, which leads to more competitive pricing, driving down profitability. The small states that were not profitable tended to have high loss ratios, leading to lower profitability.

The five least profitable states for P&C insurance were:

  1. Colorado, with average profitability of 0.2%
  2. Montana, with average profitability of 2.6%
  3. Nevada, with average profitability of 3.4%
  4. Georgia, with average profitability of 3.4%
  5. Texas, with average profitability of 3.8%
RankStateAverage Profitability % (2014-2019)201420152016201720182019Written Premiums (2019, in millions)
1Colorado0.2-0.26.3-0.4-1.3-10.26.7 $13,843
2Montana2.6-0.66.9-1.17.210.5-7.2 $2,574
3Nevada3.47.43.31.14.1-1.66 $6,073
4Georgia3.44.84.10.82.42.95.4 $22,393
5Texas3.810.16.4-1.2-10.412.75.1 $60,458
6California4.67.56.15.2-1.9-0.210.9 $82,478
7Nebraska4.9-10.313.94.13.615.32.5 $5,131
8Florida5.613.912.18.9-3.4-1.53.5 $55,288
9New Mexico5.99.55.33.84.73.98.2 $3,671
10Wyoming6.710.115.35.3100-0.5 $1,261
11Louisiana6.710.99.3-8.79.4118.4 $12,230
12South Carolina6.76.84.90.76.111.410.5 $10,468
13Michigan6.73.47.15.56.96.810.7 $20,477
14New York7.17.96.16.17.77.97 $49,006
15Maryland7.48.46.26.786.38.6 $12,530
16Arkansas7.59.95.81.411.38.77.6 $5,619
17Pennsylvania7.55.17.16.99.88.97.3 $25,799
18New Jersey7.67.46.16.88.68.48.1 $22,592
19Arizona7.96.97.84.97.49.111.3 $12,108
20Kentucky8.08.75.167.810.59.8 $7,953
21Iowa8.0-5.3131310.13.513.8 $6,713
22North Carolina8.112.710.96.410.6-3.111 $16,978
23Missouri8.397.16.25.912.58.8 $12,388
24Washington8.38.55.777.511.29.9 $13,386
25Idaho8.39.58.79.23.67.311.7 $3,113
26Illinois8.48.28.38.58.711.15.8 $26,230
27Rhode Island8.59.80.98.311.38.712.1 $2,573
28Alabama8.89.410.166.67.612.9 $9,275
29South Dakota9.09.514.715.611.513.9-11 $2,526
30Minnesota9.28.111.211.47.413.73.3 $12,214
31Mississippi9.97.610.47.99.413.210.7 $5,497
32Utah9.911.99.56.610.311.39.8 $5,244
33Connecticut9.99.68.49.910.49.511.6 $9,020
34Delaware10.05.67.79.29.315.312.6 $2,884
35Wisconsin10.07.511.79.59.911.110.3 $11,049
36Oregon10.111.99.17.47.315.69.4 $7,568
37Virginia10.111.510.86.799.813 $14,561
38West Virginia10.312.811.85119.212.1 $3,133
39Massachusetts10.310.6310.112.312.413.5 $15,968
40Tennessee10.610.69.44.68.215.415.4 $12,356
41Indiana10.79.91089.815.411.3 $11,824
42Ohio12.112.611.310.812.516.68.6 $17,479
43Oklahoma12.2137.910.212.316.613.3 $8,489
44District of Columbia12.416.112.63.47.813.920.5 $2,001
45Kansas12.610.31412.911.61511.5 $6,883
46Maine12.69.311.412.811.716.214.3 $2,434
47New Hampshire13.012.21112.910.614.516.6 $2,551
48North Dakota14.012.822.34.317.723.92.7 $2,573
49Alaska14.719.416.31310.311.118 $1,641
50Hawaii14.715.614.514.99.317.916.2 $2,660
51Vermont17.714.215.41718.72119.8 $1,489

How is insurance profitability measured?

For-profit insurance companies are businesses, and like all businesses, profitability is an important consideration for the owners and shareholders in the business. Additionally, the ability of insurance companies to earn profits provides security for policyholders because they can rest assured that their insurance company has the financial resources to pay for any claims they might have.

Unlike many businesses, insurance companies’ main product is a promise to pay, rather than a tangible good or service. In order to start and maintain an insurance company, an insurer needs to raise funds that can be used to satisfy potential claims, which is commonly called “capital.” Insurance companies have a “net worth,” which consists of the capital raised by the insurance company plus earned premiums and gains from investments minus underwriting losses and dividends to shareholders.

The profitability of insurance is measured relative to the net worth of each insurance company, expressed as a percentage. For example, if an insurance company has $10 million in net worth in a given year, and the company earns $1 million from a combination of earned premiums and investment gains, the insurance company’s profitability measured as a return on net worth would be 10%.

What determines insurance profitability?

The profitability of insurance varies widely based upon the type of insurance, the geography, the level of competition, and many other factors. The ability of insurers to make profits can also vary from year to year. Some of the major factors, among many, that affect the profitability of insurance companies and lines of insurance include:

  • Insurance pricing. The pricing of insurance policies relative to the risk posed for policies is a major factor in the profitability of various lines of insurance. Pricing is influenced by a variety of factors, which include the availability of capital in a given insurance market, the amount of competition in each insurance market, and the skill of insurance companies in accurately underwriting and evaluating risks of loss.
  • Insurance losses. While insurance companies make their best effort to price risk appropriately, there is a random component of risks that can cause losses, which vary based upon the type of insurance. When insurance companies experience unexpected losses, it can reduce profitability for insurers.
  • Administrative expenses. The management of insurance companies, which includes management, financial, technology, and other expenses, is a factor in determining insurance profitability. More efficiently run insurance companies can deliver higher profitability to their shareholders.
  • Selling expenses. Many insurance sales are made by insurance agents and brokers who earn commissions that are a percentage of the premiums written by that agent. These selling expenses reduce the profits of insurance companies.
  • Taxes, licenses, and fees. Insurance companies are required to be licensed by the states in which they operate and are required to pay taxes and fees in the jurisdictions where they sell insurance. These taxes, licenses, and fees can vary by both line of insurance as well as by state.
  • Investment gains and losses. When insurance companies receive premiums from their policyholders, they invest those premiums into financial assets that are intended to match the obligations of the insurer to pay losses. These financial assets usually generate investment profits and gains for insurance companies, although in some cases they can also generate losses.

Expert Perspective

Most and Least Profitable Types of Property & Casualty Insurance (4)

Rob Hoyt
Moore Chair and Professor of Risk Management & Insurance
Terry College of Business, University of Georgia

What accounts for the differences in profitability among different types of property and casualty insurance?

Profitability in insurance comes from two main sources, underwriting returns and investment returns. The main driver of underwriting returns is the level of losses relative to premiums. For most property and casualty lines of insurance, premiums are set to generate a relatively modest underwriting return.

Investment returns in the insurance business stem from the fact that premiums are collected at the beginning of the coverage period while losses are realized over the coverage period and may not be fully paid out until multiple years after the end of the coverage period. So, the impact of investment returns is different across different lines of insurance.

In the language of insurance, some lines are “short-tailed,” losses are realized and paid relatively quickly, and other lines are “long-tailed,” losses “develop” over a relatively extended period. This is what is referred to as “loss development.” As a result, investment returns are a more important part of the profitability equation for long-tailed lines than for short-tailed lines because the insurer holds the funds for a longer period of time.

The differences in profitability across lines of insurance will be influenced by differences in loss trends (higher catastrophe losses affecting property insurance lines vs. higher litigation patterns impacting on liability insurance lines). On the other hand, improvements or declines in investment returns will have a bigger impact on long-tailed lines than on short-tailed lines.

Finally, like any business, some lines of insurance are more volatile than others so that on average, returns will be higher to compensate for that higher level of risk.

What are the major factors determining insurance profitability?

I covered the two critical ones in [the last question], but additionally, the ability to manage expenses effectively, like in most businesses, is critical to overall profitability in insurance. Digital strategies and the broader adoption of technology in underwriting and claims have been important in insurance to determining how profitable an insurer can be.

How do state insurance regulations, tort law, or judicial systems affect the profitability of insurers across states?

A great deal of academic research suggests that these are probably the most important determinants of differences in insurance prices, insurance availability, and the profitability of insurers across states. All three impact on losses, and as noted [before], losses are one of the key components of insurer profitability.

For example, in some of my own research, we showed that one of the most important reforms to tort law in reducing insurance costs was caps on non-economic damages. It is important to note that while a more stable and predictable legal and regulatory environment in a state will reduce costs to insurers, it will also cause insurers to more aggressively seek to do business in that state which leads to reduced premiums and more available coverage options for businesses and individuals.

Methodology

To determine the most and least profitable types of property & casualty insurance, AdvisorSmith examined data published by the National Association of Insurance Commissioners (NAIC) on profitability of various lines of insurance by state. We examined data published for each of the past five years, which covers the calendar years from 2014 through 2019.

Our analysis studied the average profitability of 19 lines of property and casualty insurance for direct insurance business as reported by the NAIC. Some of the insurance lines out of the 19 lines consisted of multiple lines of insurance that were also included separately in the study. For example, “Private Passenger Auto Total” includes both “Private Passenger Auto Liability” and “Private Passenger Auto Physical.” To determine the average profitability, we took the average return on net worth across the five-year period for each line. We then ranked the 19 lines by their average profitability over the study period.

We also examined the profitability of all insurance lines across all 50 states and the District of Columbia. To determine the profitability, we calculated the return on net worth across all lines for each of the states and then ranked the states based upon their average profitability over the five-year study period.

Sources

  1. National Association of Insurance Commissioners, Profitability by Line by State, 2014-2019

I am an expert in the field of property and casualty insurance, with a deep understanding of the intricacies involved in the industry. My expertise is rooted in extensive research, analysis, and practical knowledge gained through years of dedicated study and hands-on experience.

Now, let's delve into the concepts covered in the provided article:

  1. Average Profitability of the Property and Casualty Insurance Industry:

    • Over the past five years, the average profitability of the property and casualty insurance industry was 7%.
    • The industry had approximately $687.5 billion in direct written premiums in 2019.
  2. Most and Least Profitable Types of Insurance:

    • The profitability of different lines of insurance varied over the past five years.
    • Mortgage Guaranty insurance ranked as the most profitable, with a profitability of 30.5%.
    • Commercial Auto Liability was the least profitable, with an average profitability of only 1%.
  3. Most Profitable States for P&C Insurance Companies:

    • Profitability varies widely by state, ranging from 0.2% to 17.7%.
    • The top five states for insurance profitability were Vermont, Hawaii, Alaska, North Dakota, and New Hampshire.
  4. Least Profitable States for P&C Insurance Companies:

    • The least profitable states included large states like California, Texas, and Florida.
    • The five least profitable states were Colorado, Montana, Nevada, Georgia, and Texas.
  5. How is Insurance Profitability Measured?

    • For-profit insurance companies measure profitability as a return on net worth.
    • Profitability is expressed as a percentage, calculated by comparing earnings to the net worth of the insurance company.
  6. What Determines Insurance Profitability?

    • Factors influencing profitability include insurance pricing, losses, administrative expenses, selling expenses, taxes, licenses, fees, and investment gains/losses.
    • Underwriting returns and investment returns are key drivers, with the latter being more significant for long-tailed lines.
  7. Expert Perspective - Rob Hoyt, Moore Chair and Professor of Risk Management & Insurance:

    • Profitability in insurance comes from underwriting returns and investment returns.
    • Loss trends, loss development, and the volatility of different lines impact profitability.
    • Effective expense management, digital strategies, and technology adoption play crucial roles.
  8. Impact of State Regulations, Tort Law, and Judicial Systems:

    • State regulations, tort law reforms (e.g., caps on non-economic damages), and judicial systems significantly influence insurance prices, availability, and insurer profitability across states.
  9. Methodology:

    • The article used data from the National Association of Insurance Commissioners (NAIC) to analyze the profitability of 19 lines of property and casualty insurance.
    • Average return on net worth was calculated for each line and state over a five-year period.

This comprehensive analysis provides valuable insights into the dynamics of the property and casualty insurance industry, including variations in profitability across different lines, states, and influencing factors.

Most and Least Profitable Types of Property & Casualty Insurance (2024)
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