Auto insurers dealing with the “pandemic price”
Across seemingly every news outlet, it’s hard to escape reports of inflation and rising consumer prices.
And, like other goods and services across the economy, auto insurance rates are a part of the conversation. Currently, many carriers are raising prices to account for unexpected costs—but what’s driving those decisions?
You guessed it. It’s primarily pandemic related, but perhaps not in the ways you might think.
A return to “normal”
Of course, we’re hardly back to “normal” as the world continues to wrestle with the pandemic, but driving behavior, particularly vehicle miles traveled, has essentially “normalized” and returned to pre-pandemic levels.
At the outset of the pandemic, miles driven dropped, claims fell, and insurers issued refunds/credits, lowered rates, or both. As 2021 unfolded, driving behavior picked up as did claims frequency and, in turn, insurers’ costs. Most auto insurers subsequently found themselves underpriced.
Rising repair and replacement costs
For insurers the past predicts the future. Generally speaking, insurers review historical data and trends to set prices for future expected costs. The pandemic, however, upended expected repair and replacement costs in ways that were challenging to anticipate. Case in point: unpredictable pandemic-related supply chain disruptions and labor shortages have driven claims costs up substantially.
In fact, the Bureau of Labor Statistics reports that average expenditures for vehicle repairs have risen more than 4% over the last year, while used car and truck prices have skyrocketed by more than 40% over the same period.
When you combine the uptick in vehicle miles driven and the related increase in claims with rising costs to cover those claims, carriers are paying a “pandemic price” that will affect rates throughout the auto insurance industry in the near term.
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*Thanks in part to Mark Nedved, Progressive marketing and communications, for the data and facts above.