As the world starts to return to normal following the pandemic, auto insurers are facing a tough road ahead. With people staying home and working remotely, there were far fewer miles driven during the pandemic. This led to a drop in auto losses and insurance payouts.
Now that things are beginning to open back up, people are starting to drive more again. However, due to Proposition 103, which bases auto premiums on mileage-driven, insurers will be struggling to keep up with demand. So while the post-pandemic landscape may look promising for some industries, auto insurers unfortunately have a long road ahead.
In this blog post, we will discuss what’s happening in the auto insurance industry and how it may financially impact both the insurer and the insured.
the current state of auto insurance
Carriers are now struggling to catch up with insureds and get adequate rates in light of increased exposure. Other factors such as supply chain issues, labor shortages, and increased wages have caused claim costs to rise, while vehicle repair times have more than doubled. As a result, both new and used vehicle prices are at all-time highs, resulting in increased costs when vehicles are totaled in an accident.
what does this all mean?
This means that auto insurance carriers will have to find ways to cut costs and increase efficiency in order to stay afloat. One way they may do this is by increasing the use of technology, such as telematics, to help them better assess risk. They may also move towards a more pay-as-you-go model, where customers are only charged for the amount of coverage they actually use. Whatever changes auto insurers make in the post-pandemic landscape, one thing is for sure: they will need to be adaptable and agile in order to survive.
how are auto insurers coping?
Auto insurance companies have requested 15-20% rate increases in order to maintain profitability, but the Department of Insurance has refused to grant these requests. As a result, many carriers are struggling to keep up with rising costs. Some carriers have been told by the DOI not to bother filing for any rate increases, as they are unlikely to be approved. This lack of approval has been going on for two years now. Consequently, auto insurance rates have remained stagnant during this time period.
what does this mean for consumers?
These changes mean that auto insurance rates are likely to remain unchanged in the near future. And right now, premiums are at an all-time high. This is good news for those who are already struggling to pay their premiums. However, it also means that insurers will continue to struggle to pay claims, which could lead to longer wait times for repairs and other services.
Auto insurance companies are struggling right now because they are having to pay out more money in claims than they are bringing in through premiums. This is especially true for policies that were written recently since insurers didn’t collect the full premium upfront. To try to fix this, some auto insurers have stopped writing new policies altogether, at least through independent agents.
the issues at hand
This is a problem because people who need auto insurance still need to be able to get it. Hopefully, this will all be sorted out soon so that everyone who needs auto insurance can get it again without any trouble.
One carrier shared that the loss ratios on first-year written policies, starting with policies written in the month of January through the month of June, were 121% 128% 120% 128% 115% 118%. This means that for every dollar that was collected in premiums, the insurance company had to pay out $121-$128 in claims. So they are losing money on these policies.
The auto insurers are facing higher payouts, and they will need to recoup those losses somehow. And that means that these huge payouts are costing consumers in the long run. Premiums are likely to stay high to compensate for the increased payouts. At the same time, insurers are taking much longer to issue these payouts while they adjust to post-pandemic challenges.
the future of auto insurance
First-year auto insurance policies always run a higher loss ratio because the premium is not collected upfront. That is why we’ve seen so many carriers require payment in full on new policies.
Some insurers have tried to fix this problem by requiring that people pay the full premium upfront when they get a new policy. But this was rejected last week by the DOI (Department of Insurance).
Some auto insurance carriers are trying to make it harder to write new business by only allowing quotes and new policies to be written on their own websites. This is because they want people to buy less auto insurance, or stop buying it altogether.
During the pandemic, people drove less because they were staying home. This meant that there were fewer accidents and insurance companies had to pay out less money. Now that the pandemic is mostly over, people are driving more and insurance companies are having to pay out more money again. Insurance companies are also having to pay more for repairs because it’s taking longer to get parts and labor is more expensive. So all of this together means that auto insurance rates will likely stay high.
Despite these challenges, auto insurers are still committed to providing coverage for their customers. They are working hard to ensure that claims are processed quickly and efficiently and that rates do not increase too much. The pandemic has been a difficult time for everyone, but auto insurers are doing their best to keep the roads safe for all of us.
Reach out to our team if you have any questions or concerns regarding auto insurance.