Car insurers rush to raise rates as inflation takes a toll

Many insurers are boosting premiums by 6% to 8% while some are asking for double-digit increases, according to industry executives and analysts. The rising rates are an example of inflation leading to more price increases as businesses try to compensate for higher costs.

After having a stellar year when lockdowns kept many drivers off the roads, insurers struggled in the second half of 2021. Auto insurers posted dismal fourth-quarter results, and laid out plans to raise rates. During 2020, many insurers gave consumers rebates and some modestly reduced rates.

Car and home insurer Allstate Corp. is raising rates by an average of 7.1% across 25 states, its executives said on an earnings call, and more increases are ahead.

“We are continuing to go at a very fast pace across other states and even in some cases, the same states again, with rate increases as we get new data and new trends," Glenn Shapiro, a senior Allstate executive, said.

Insurers are feeling pressure on all sides of their business. Traffic is at or near pre-pandemic levels across the U.S., and accidents have risen from their lockdown lows.

More accidents mean more replacement cars and repairs. Used-car prices have soared as semiconductor chip shortages reduced the supply of new cars. The higher prices are reflected in insurer payments for totaled vehicles.

The shortage of new vehicles has also led to steep increases in rental-car rates. Many car policies provide rentals to consumers while their cars are under repair.

Meanwhile, it is taking longer for auto-body shops to fix cars because of delays in obtaining replacement parts, so insurers are paying for more rental-car days. And car parts cost more.

Speeding and distracted driving are also on the upswing, insurers say and government statistics show, resulting in more serious and fatal crashes. Allstate also cited medical inflation as a problem.

Travelers Cos. said higher rates have taken effect in 11 states since August, and the company anticipates additional increases in about 25 states in the first quarter, with more later in the year. “We may, in some states, take a couple of rate increases in 2022," Michael Klein, a senior executive, said on the company’s earnings call.

Kemper Corp. said on its earnings call that in the third and fourth quarters it filed for an approximately 11% premium increase on more than half of its personal auto-insurance business. Progressive Corp. is seeking a range of increases, up to 17% in certain locations, according to filings reviewed by S&P Global Market Intelligence.

Double-digit requests generally are getting knocked down to the single digits by state regulators, analysts said. In some states, insurance departments must approve proposed rate changes before they can be billed to consumers, while other states allow them to go into effect subject to subsequent review.

Some consumer activists are protesting the increases, contending that carriers had windfall profits during the Covid-19 lockdowns. Insurers say they treated consumers fairly by temporarily reducing premiums and other programs.

“Insurers drag their feet" in lowering premiums but “fall all over themselves in their rush to raise rates as quickly as possible," said Robert Hunter, insurance director emeritus at the Consumer Federation of America.

Mississippi Insurance Commissioner Mike Chaney, who heads a committee at the standard-setting National Association of Insurance Commissioners that oversees car insurance, said regulators will review carriers’ experience in 2020 and 2021, along with their premium-refund programs.

Consumers have a few ways to limit the increases. Mutual insurers, which are owned by their policyholders, have so far raised rates by less than publicly traded insurers, said William Wilt, president of Assured Research LLC.

State Farm Mutual Automobile Insurance Co., the nation’s biggest car insurer by premium volume, aims to make incremental adjustments to minimize the impact on customers, a spokeswoman said. So far this year the carrier has raised rates by 2% to 3% in four states, she said.

People who are still working from home or just driving less may be able to cut their rates by using telematics programs, under which insurers monitor driving behaviors either through smartphone applications or devices embedded in their vehicles. Insurers focus on such things as speeding, braking and miles driven. Some offer premium reductions of 25% or more to the best drivers. The trade-off is allowing an insurer access to such personal detail.

Just switching insurers in the highly competitive industry can also save money.