Car-Insurance Bills Are Rising, With More Increases to Come
Rates up as much as 20% as insurers struggle with inflation
Car owners need to buckle up: Higher premiums are starting to arrive as insurers get state approval for rate increases to offset inflation and an increase in serious crashes.
Rates are rising as much as 20% in some locations, as insurers seek increases to compensate for what they believe will be more sustained inflation. Consumers are starting to see the impact when their policies, which typically run for six months, come up for renewal.
Some state insurance departments, including California’s, are pushing back or going slow on approving the increases.
“These cost increases are going to be here for a while,” said Allstate Corp. ALL 2.39% Chief Executive Tom Wilson, speaking about inflation in repairing and replacing vehicles. “So we’ve been raising prices pretty aggressively, as well as reducing our expenses.”
Car insurers have struggled as driving and accidents have rebounded from pandemic lows. Car repairs and replacement vehicles are more expensive. Insurers are paying for longer rental periods than they used to, amid shortages of body-shop technicians and delays in getting repair parts, among other cost pressures. In addition, traffic fatalities surged in 2021 to a 16-year high.
During the first quarter, Allstate increased rates in 28 states an average of 9.3% for its Allstate car-insurance brand. An Allstate senior executive told analysts in an earnings call in early May that, “given the ongoing inflationary pressure, we have increased the magnitude of rate increases we expect to take in the rest of 2022.” Allstate’s underwriting income for its car- and home-insurance unit fell 83% to $280 million in the quarter.
From the middle of last year when some insurers began raising rates aggressively, the industry through early May obtained increases on about 61% of its base of personal-auto premiums, said Elyse Greenspan, an analyst with Wells Fargo Securities. For now, the rate increases are “not enough to offset the elevated loss trend.”
The increases vary by state, with larger rate hikes by big carriers ranging from 7% to 20% as of March, according to filings reviewed by S&P Global Market Intelligence. The average U.S. car-insurance rate was $1,529 last year, according to Zebra, a price-comparison website.
So far, regulators in California, the nation’s most populous state, haven’t approved any recent rate-increase requests. The regulators are concerned partly that Covid-19 premium-relief programs offered by car insurers in general were inadequate, said Deputy Commissioner Michael Soller.
Nationally, those programs spared consumers about $14 billion in payments during early months of the pandemic in 2020 when driving plummeted and insurers enjoyed outsize profits.
The California department is reviewing data from Allstate and other carriers deemed to have the largest gaps between what the state believes they owe consumers and what has been refunded “to determine how best to close the gap,” Mr. Soller said.
Allstate provided average 15% premium reductions to personal auto-insurance customers for three months in 2020, allowed payment delays and took other steps to help policyholders. “From our standpoint, we gave our shareholders $1 billion back, and we were not in any way, shape or form required to do that,” Mr. Wilson said. “We did it because we thought it was the right thing to do.”
Mr. Wilson said that insurers don’t sell policies “to give their money away,” and that most regulators “understand and are supporting price increases.”
As they seek higher rates, “some insurance companies have slowed new-business growth and tightened underwriting standards,” most notably in California, said Matthew Carletti, an analyst with JMP Securities.
The U.S. personal car-insurance industry has turned an underwriting profit in just three of the past 10 years, according to Moody’s Investors Service. That means some insurers over much of the past decade annually sent more money out the door in claims and other expenses than they collected in premiums, before accounting for income earned by investing premiums, though results vary widely across companies.
Many carriers also have other lines of business and operations that have helped them generate profits overall.
When regulators deny or delay approvals for justified increases in the name of consumer protection, it “will have the exact opposite effect on policyholders by threatening the availability of coverage and the solvency of companies providing it,” said Neil Alldredge, president of the National Association of Mutual Insurance Companies.
Consumer activists see it differently. Birny Birnbaum, executive director of the Center for Economic Justice, said that some “regulators seem to uncritically approve rate increases.”
One noticeable element of the push for higher premiums may be a decline in advertising for car insurance. Insurers don’t want to attract too many new customers at rates they consider insufficient, and cutting marketing expenses can reduce costs to boost results.
Progressive Corp. PGR 3.02% Chief Executive Tricia Griffith said in the company’s first-quarter call in May that once rate increases are approved, the company will boost marketing to spur growth.
“We want to be open for Californians and we’ll work closely with the regulators to make that happen,” she said. Progressive said it provided more than $1 billion in premium credits in 2020, among other actions aiding policyholders.
