Auto insurance rates rise, but insurers brace for higher costs ahead

A used car dealer employee steps into the water as he inspects vehicles after two days of heavy rain in Lexington, Miss., Thursday, Jan.

Rogelio V. Solis | AP

Despite the recent hikes in auto insurance rates, the market is still weak, according to Elyse Greenspan, a director at Wells Fargo.

“The increase has been very modest sequentially,” Greenspan said in an interview. “The reason for the strong increase over the previous year is that the premium base was affected by all refunds in May 2020.”

As the number of motorists fell, auto insurers reimbursed $ 14 billion in premiums last year, according to the Insurance Information Institute. Interest rates continued to stagnate or even fell in the first quarter.

However, the latest consumer price index data showed that the auto insurance index was up 16.9% in May, after rising 6.4% in April – the first rises since March 2020.

Auto insurers face a number of challenges as the economy re-opens. Workers are returning to the offices and vaccinations are causing many people to take summer vacation. Government data from March, the most recent statistics available, show a 19% increase.

The result of people returning to pre-Covid driving levels means the number of car accidents, according to Michel Leonard, III. Vice President, will rise.

If this year’s trend follows last year, the accidents can also be more severe. Although driving hours fell 13% last year, the death toll rose 7%, according to the National Highway Transportation Safety Administration. Experts blame the increase on a higher incidence of speeding, impaired driving and distracted driving.

In addition, says Leonard, many drivers are out of practice, especially when parking or navigating through traffic.

More accidents mean more damage – and this damage is expected to become more expensive for insurers as repair costs rise.

The CPI data shows car repair profits month after month. The increase of 2.8% in May was somewhat slower than in the previous months. (Repair costs increased by 3.5% in April and March, by 3.1% in February and by 3.5% in January.) And waiting times are longer due to the lack of chips, interruptions in the supply chain and labor shortages.

However, not all insurers raise their tariffs. In a Wells Fargo review, Greenspan said Hartford and Allstate raised rates in May, but Travelers, Progressive and State Farm saw prices decline. Geico raised prices in April but didn’t file price changes for May, he said.

“It’s still a good environment for consumers to get auto insurance,” said Greenspan.

She believes the environment for auto insurers will remain difficult until the fall, as commuters return to work, students return to school and people who used public transport before the pandemic choose to drive themselves.

“There’s just a lot of headwinds from a severity and frequency standpoint,” she said.

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