What’s Happening With Auto Insurance Rates
Recent news reports might create the impression that auto insurance rates are soaring. As the chart below shows, they have been returning to pre-pandemic levels as we begin 2022.
At the beginning of the pandemic, auto insurance companies- anticipating fewer accidents amid the economic lockdown - gave back approximately $14 billion to policyholders in the form of cash refunds and account credits. Recent rate increases are from those pandemic lows.
But something interesting happened during the pandemic. While miles driven declined and accident frequency initially dropped, frequency and severity quickly started increasing again.
*includes copyrighted material of Insurance Services Offices, Inc., with permission U.S Department of Transportation
Triple-I analysis of FRED data
Takeaways
Auto insurance premiums aren’t “skyrocketing” - they have returned to pre-pandemic levels after $14 billion was returned to policy holders in anticipation of fewer accidents.
Accident frequency and severity are rising quickly.
These factors- combined with replacement parts inflation due to supply-chain issues- have driven insurers’ auto losses above pre-pandemic levels.
Regulatory requirements constrain insurers’ ability to respond to cost increases other than by raising rates. Regulators have to review all rate changes to ensure that they are appropriate and fair.
While insurers’ personal auto loss ratios fell briefly and sharply in 2020, they have since climbed steadily to exceed pre-pandemic levels. With more drivers on the road and replacement parts costs continuing to climb, this loss trend is expected to continue.
Any business needs to make a reasonable profit to survive. Personal auto insurance currently is barely a profitable line for the industry, and the factors outlined above will continue to pressure on insurance companies to raise rates to ensure the coverage is appropriately priced.
Dan Zeiler
dan@zeiler.com
877-597-5900 x134