Andrew Bary
Auto insurance rates are set to moderate after outsize increases in the past two years and that could help put a damper on consumer prices.
The auto insurance industry has gone from big losses in 2022 to profitability in 2024, and large insurers like Progressive and Geico are generating outsize underwriting profits considerably above their targeted levels. Geico is a key part of Berkshire Hathaway's big property and casualty insurance business.
Insurance industry executives have said they are generally satisfied with insurance rates that now average about $2,000 per vehicle in the U.S.
"We will probably see a moderation" in increases as the year progresses, says Meyer Shields, the property and casualty insurance analyst at KBW.
The March consumer price $(CPI.UK)$ index report on Thursday morning could offer a read on trends. Goldman Sachs economists, however, don't see moderation showing up yet in the auto insurance component. They forecast a 1% increase in March and an 0.1% rise in the overall index.
The auto insurance industry had underwriting profits totaling 8.5% of premium revenue during 2024, according to preliminary results from A.M Best. That compares with break-even underwriting results in 2023 and underwriting loss of 6% of premiums in 2022.
Auto insurance has been one of the biggest contributors to increases in the consumer price index over the past two years as insurers boosted rates sharply to regain profitability. The auto insurance component of CPI rose 11% in the year ended February, including an 0.9% increase during the month of February.
Auto insurance alone accounted for about 10% of the overall increase of nearly 3% in consumer prices over the past year. During 2023, the auto insurance rates rose 20%. Auto insurance accounts for about 3% of the CPI index.
Shields says it may take some time for moderating auto insurance rates to show up in the CPI report and doesn't think they will drop to zero this year.
Some rate decreases are already in process.
In Florida, Geico, Progressive, and State Farm have filed for rate reductions of -10.5%, -8.1%, and -6%, respectively, according to an announcement in February by Florida Gov. Ron DeSantis. He credited insurance reforms in the state.
Judging from the underwriting results reported by some big insurers, auto insurance rates arguably ought to be coming down. Progressive, the fast-growing No. 2 auto insurer, has reported underwriting profits of about 17% of premiums in the first two months of this year -- way above its targeted margin of at least 4%.
Geico, which is No. 3, reported a similar margin in the fourth quarter and its highest annual underwriting profits ever in 2024. The industry leader, State Farm, however, reported an underwriting loss for 2024.
"The good news is, we've achieved target margins. So we're comfortable with where our rate level is currently and we would expect that we would need to take less price going forward," said Allstate property liability chief Anthony Rizzo on the earnings conference call in February.
"So we've taken rates up slightly in a handful of states. We've taken rates down slightly in a handful of states," said Progressive CEO Tricia Griffith on the company's earnings call in February.
Shields says insurers may be wary about cutting rates after getting stung in 2022. "You've had a brief period of profitability. The industry may be more cautious," he says.
There could be regulatory and political pressure on auto insurers to cut rates given the big profits that the industry is producing -- and at least a greater reluctance by state insurance regulators to approve rate increases.
Shields says that President Donald Trump's tariff proposals add uncertainty to the mix.
The tariffs stand to boost prices of foreign-made parts that are used to repair damaged vehicles. He also notes that auto claims frequency has declined -- and one reason could be a reluctance among drivers to file small claims. They may fear losing insurance if they file claims given the difficulty in getting insurance for many drivers in some states.
It may take a little time, but auto insurance rates seem poised to moderate or even decline. That's good news for consumers.
Write to Andrew Bary at andrew.bary@barrons.com
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April 09, 2025 16:47 ET (20:47 GMT)
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