Car insurers are rapidly raising rates to try to get ahead of inflation, which has boosted the prices of car repairs, replacements and rentals.
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.
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.
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.
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