Data Advantage Cultivates Investment Opportunity in Personal Lines

May 19, 2010

Personal line insurance represents the best short-term investment opportunity among insurance subsectors, according to Meyer Shields, a Stifel Nicolaus analyst. Shields attributes this to the more comprehensive data collected by personal line insurers in comparison to industry counterparts.

“On the personal line side, the difference is having much more data,” Shields said. “If the uncertainty is less, then the propensity to overestimate profitability is less, and therefore we see more precise pricing.”

Better pricing means more stable and predicable earnings for the personal line group.

In addition, because the largest personal line companies control more of the market than the largest commercial insurers, personal lines have greater economies of scale.

“On top of that, State Farm, which is the biggest personal insurer in the country, has been producing relatively poor results for the past couple of years,” Shields said. “And whenever you’ve got your biggest competitor needing to raise rates, this would be good news in general.”