Trends and Insights: Personal Auto Insurance Rates

Trends and Insights: Personal Auto Insurance Rates

Trends and Insights: Personal Auto Insurance Rates


Premium prices for personal vehicle insurance have returned to pre-pandemic levels, but many factors may continue to push premiums higher.

Auto insurers gave back around $14 billion to policyholders in the form of cash refunds and account credits at the start of the COVID-19 epidemic, anticipating fewer accidents amid the economic lockdown.

However, while the number of miles driven decreased and the number of accidents decreased at first, the frequency and severity of accidents gradually increased. After decades of steady declines, traffic deaths have also risen.

While personal auto loss ratios declined drastically in 2020, they have progressively risen since then to exceed pre-pandemic levels. This loss trend is projected to continue as there are more drivers on the road and replacement parts costs continue to rise.

Losses and premiums

In order to stay afloat, insurers must establish premiums that are proportional to the risks they cover. Auto premium prices take into account a variety of criteria such as the vehicle, the policyholder, the area, and the vehicle's use, as well as how these elements affect the insurer's loss experience.

In an ideal world, changes in rates would exactly match with changes in loss experience. As shown in the graph below, these two measures for the total industry tracked very closely until the onset of the epidemic. The pandemic-related disruptions of 2020 caused volatility in both measurements, with losses being more erratic than prices, which has recovered to pre-pandemic levels, as previously stated.

Fatalities deviate from a long-term pattern.

According to the National Highway Traffic Safety Administration, the current increase in auto deaths deviates from a four-decade declining trend (NHTSA). Those decreases occurred despite an increase in the number of individuals driving and overall miles driven.

The National Highway Traffic Safety Administration attributed the gains to variables such as greater seatbelt use, reduced intoxicated driving, and car safety advancements such as air bags and electronic stability controls. According to the National Highway Traffic Safety Administration, the number of people killed in drunk driving accidents decreased by 4% in 2018, and the number of people killed in rollover crashes decreased by 10%.

Profitability of personal auto insurance

A decent profit must be made by any business.

The "combined ratio," which is computed by dividing the sum of claim-related losses and all expenses by earned premium, is used to assess insurers' underwriting profitability. A profit is shown by a combined ratio of less than 100 percent. A loss is indicated by a ratio greater than 100 percent.

As reckless-driving behaviors that developed with the pandemic have continued, as have cost trends that predate COVID-19, the vehicle insurance line, which has been slightly profitable since 2018, is inching back toward unprofitability. The profitability of auto insurance in 2020 - a year with drastically fewer cars on the road – was at its best level since 2006.

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