The American Property Casualty Insurance Association (APCIA) has released three reports detailing how insurers and policyholders are “under severe upward pressure on insurance rates” following the biggest rise in the rate of inflation in a period 12 months since 1982.
APCIA attributes the auto insurance rate increases to labor shortages as well as the rising cost of vehicle repairs and rental cars. Progressive and State Farm saw their net income decline in 2021 and increased their rates.
The Insurance Journal reports that Progressive saw its net income drop approximately $3.35 billion, or 41%, from approximately $5.7 billion in 2020. In November, the company received approval from 38 rate hikes in 10 states, totaling an estimated total of $161.1. million in bounties that will be earned, according to S&P Global Market Intelligence.
State Farm announced that its net income increased from $3.7 billion in 2020 to $1.3 billion in 2021. The company states on its website that “auto insurance rates are rising nationwide. industry” due to the increased cost and frequency of claims as more miles are driven, repair costs increase and drivers are distracted.
The pattern is clear and consistent across the board – as costs rise, carriers are raising their rates accordingly, consistent with previous reports that despite strong 2021 earnings, Allstate has also increased rates for policyholders and plans to continue to do so.
APCIA reports that “the return of higher frequency coupled with significantly higher auto repair and replacement costs has had a big impact on auto insurance costs.” Although it may seem that part of the increase in repair costs is related to higher labor rates for repairers to offset their own growing expenses, this is not always the case. . For example, the creation of a special commission to examine auto body labor rates in Massachusetts showed the insurance industry’s perspective on labor rates – lobbying against paying stores more for labor with the rationale that this is an effort to control costs for policyholders.
Motor insurance has been “particularly impacted” by price increases for new vehicles, which rose 11.8% in 2021 – the biggest increase since 1975, according to APCIA. Used vehicle prices also rose by a record 37.3%.
“Higher rental rates combined with longer average repair times also contribute to higher auto insurance costs,” APCIA wrote. “The average duration of an insurance replacement rental increased by 23%, from an average of 12.3 days in the third quarter of 2020 to 15.2 days in the third quarter of 2021.”
“Pent-up demand, depleted vehicle and parts inventories and a series of global supply chain issues in a post-pandemic era have created myriad issues that are impacting the automotive industry, resulting in significant spikes in claims costs, whether to repair or replace a vehicle,” says APCIA in its report, “Auto Insurers Struggle to Keep Pace with Highest Inflation in 40 Years “.
Private passenger auto loss ratios fell from 55.6% at year-end 2020 to 72.2% in the first three quarters of 2021, which APCIA attributed to “driving behavior riskiest” since the start of the pandemic, including impaired driving, speeding and failure to wear a seatbelt, which has led to an increase in the number of deaths. The APCIA auto insurance report also notes that miles driven in four of the past five months are within 1% of pre-COVID 2019 levels and auto claims frequency is on the rise.
“We urge people to drive safely, especially during this time when there has been a sharp increase in car accidents due to more reckless motorists on the road,” said Robert Passmore, vice president of the APIA Automotive and Claims Policy, in a statement. “This will reduce their risk of loss and avoid potentially long repair times as vehicle parts become harder to find.”
Private passenger motor direct liability losses climbed 13.9% in the third quarter of 2021 compared to the same period in 2020. 1% over the same period, well below the rate of loss escalation,” APCIA wrote. .
Supply chain issues caused by port backlogs, natural disasters, trucker blockages at Canadian border crossings and the “exponential growth” of global container freight costs have also “posed additional challenges, adding pressure driving up costs and extending delivery times for goods, including critical auto parts.” and components. The frequency of property and casualty theft claims has also been listed by the APCIA as a factor driving up insurance costs.
“All indicators suggest that high car repair and replacement costs will extend into 2022 and potentially beyond. … When it comes to car insurance costs, the bottom line is that until As vehicle production improves, restoring inventory in the new vehicle market, demand and therefore prices for used vehicles will remain at record highs.However, as new coronavirus variants emerge spread, including in key regions where semiconductor chips are produced, automakers around the world will continue to struggle to balance supply and demand.
Featured Image Credit: Stationidea/iStock
Damage to vehicles (property damage and collisions) Percentage change since 2016 (Source: APCIA)
“Inflationary Trends and Insurance Impacts” from APCIA’s “Insurers Struggling to Keep Pace”
with the highest inflation in 40 years” report