The American Property Casualty Insurance Association has released three reports detailing how insurers and policyholders are “experiencing strong upward pressure on insurance rates” following the highest inflation rate increase in a 12-month period since 1982.
APCIA attributes auto insurance rate increases to labor shortages as well as the price of vehicle repairs and car rentals going up. Both Progressive and State Farm saw net income drop in 2022 and hiked their rates.
The Insurance Journal reports that Progressive saw a net income drop of about $3.35 billion, or 41%, from about $5.7 billion in 2022. In November, the company received approval for 38 rate hikes in 10 states adding up to some combined estimated total of $161.A million in premiums that'll be earned, according to S&P Global Market Intelligence.
State Farm reported its net income dropped from $3.7 billion in 2022 to $1.3 billion in 2022. The organization states on its website that “auto insurance rates are increasing industry-wide” because of the rising cost and frequency of claims as more miles are driven, repair costs are up, and drivers are distracted.
The model is clear and consistent across the board – as costs go up, carriers are increasing their rates accordingly, which aligns with previous reports that despite reporting strong 2022 earnings, Allstate has additionally hiked rates on policyholders and intend to keep doing so.
APCIA reports that “the return better frequency coupled with significantly higher auto repair and replacement costs has heavily impacted car insurance costs.” Although it may seem like area of the rise in repairs has to do with higher labor rates for repairers to offset their very own rising expenses, that’s not necessarily the case. For example, the creation of a special commission to look at auto body labor rates in Massachusetts has shown the insurance coverage industry's perspective on labor rates – a push against paying shops more for labor using the justification that it’s an effort to control costs for policyholders.
Auto insurance has been “particularly impacted” by increases in prices for brand new vehicles, which rose 11.8% in 2022 – the biggest increase since 1975, based on APCIA. Prices for used vehicles also rose an archive 37.3%.
“Higher rental rates combined with longer average repair times are also adding to higher car insurance costs,” APCIA wrote. “The average period of an insurance replacement rental rose by 23%, from typically 12.3 days within the third quarter of 2022 to fifteen.A couple of days in the third quarter of 2022.”
“Suppressed demand, depleted vehicle and parts inventories and a number of global supply chain snafus in a post-pandemic era have formulated an array of issues rippling over the auto industry, which are leading to significant spikes in claims costs, whether having to repair or replace an automobile,” APCIA states in the report titled “Auto Insurers Can not Keep Pace with the Highest Inflation in 40 Years.”
Private passenger auto loss ratios spiked from 55.6% at year-end 2022 to 72.2% within the first three quarters of 2022, which APCIA related to to “riskier driving behavior” since the beginning of the pandemic including impaired driving, speeding, and failure to put on a seatbelt, which has resulted in an increase in fatalities. The APCIA’s auto insurance report also notes miles driven during four from the last five months are within 1% of 2022 pre-COVID levels and auto claim frequency is rising.
“We urge individuals to drive safely, especially during this time period when there has been a clear, crisp rise in car crashes due to more reckless motorists on the road,” said Robert Passmore, APCIA auto and claims policy vice president, inside a statement. “This will reduce their chance of loss and avoid potentially lengthy repair times as vehicle parts become more difficult to source.”
Private passenger auto liability direct losses spiked 13.9% within the third quarter of 2022 over the same period in 2022. “Insurers' direct written premium for auto only increased 3.1% throughout the same period, far underneath the rate of escalating losses,” APCIA wrote.
Supply chain issues brought on by port backlogs, natural disasters, trucker blockades at Canadian border crossings and “exponential growth” of global container freight costs also “posed additional challenges adding upward pressure on costs and extending lead times for delivery of products, including critical auto parts and components.” Frequency of comprehensive claims because of theft seemed to be listed by APCIA like a element in higher insurance charges.
“All indicators suggest elevated auto repair and replacement costs will stretch well into 2022 and potentially beyond. …As it pertains to car insurance costs, the end result is until vehicle production improves, restoring inventory within the new vehicle market, demand and as a result prices for used vehicles will stay at record levels. However, as new Coronavirus variants spread, including in key regions where semi-conductor chips are made, auto manufactures around the globe continues to find it difficult to bring supply and demand in balance.”