Masks are being removed, COVID restrictions are being lowered, and motorists are on the road – and immediately fall into higher car insurance rates, which show no signs of a decline this year, economists say.
Deferred demand for new and used cars, which appears after a year of driving with a limited pandemic, increases the risks for insurers who pass on the cost of this risk to consumers, regardless of their accidents and claims.
While car insurers typically increase their annual rates by 3% each year, recent studies by Insurify and S&P Global Market Intelligence show they rose 12% in 2021. Insurify predicts that this year they will grow by another 5%.
“For the first time in ten years, the U.S. auto insurance industry made a profit from car insurance in 2020 because drivers did not travel on the road because of the pandemic,” said Hans Dow, founder of the consulting firm Mitchell Madison Group. “Now high headline inflation and rising prices for used and new cars are clearly increasing insurers’ costs, given that the frequency and severity of claims are returning to normal.”
Mr Dow added that the expected increase in interest rates in March, which would lead to losses in bonds of property insurers’ bonds and losses of $ 2 trillion, was also “an important factor contributing to premium growth”.
“P&C insurers have three times more invested assets than premium income, as they typically earn non-profit underwriting and derive all of their profits from invested premiums,” he said. Daw said.
Brian Marx, who teaches economics at the University of New Haven, said supply chain factors in raising tariffs include increasing the cost of computer chips, parts and labor, which remain in short supply. This is forcing car dealers to sell new cars above their MSRP, he said.
“Delays in repairs also mean, if applicable, the need to rent cars, the prices of which are also rising,” Mr Marx said.
Scott Holeman, director of media relations at the Institute of Insurance Information, an industry group known as Triple-I, said the sharp rise means rates are returning to normal.
“While some recent news reports may give the impression that car insurance rates are rising, they are actually returning to pre-pandemic levels in the first quarter of 2022,” Mr Holeman said. “Car insurers returned to insurers about $ 14 billion at the start of the pandemic as they expected fewer accidents during the economic blockade.”
But he also cited the Triple-I report that collision frequency increased by 42%, collision severity increased by 43%, mortality increased by 26% and spare parts cost increased by 13% in the third quarter of 2021.
“We are seeing a rapid increase in the frequency and severity of accidents,” Mr Holeman said. “These factors, combined with supply chain problems, have led to insurers’ highways exceeding the level before the pandemic.”
Other industry research confirms that in 2020 fewer Americans were driving, which reduced accidents and remained the same or lower than in previous years.
In 2021, tariffs rose again as many drivers returned to the road after the pandemic was blocked.
Last month, S&P Global Market Intelligence reported that car insurance rates rose in November from 3% to 12% in several companies.
In March, April and May 2021, Insurify reported that Americans had driven 32% more miles than the same period in the spring of the previous year, although mileage had not returned to 2019 levels.
“Although the death rate fell by 3% between spring 2020 and 2021, it remained 26% higher in 2021 than the same period in 2019, indicating that reckless driving habits adopted during the initial orders of shelters from the pandemic, survived the pandemic well, ”the Insurify report said.
Christine McDaniel, a senior fellow at George Mason University’s Mercatus Center Free Market think tank, said Insurify confirms that private car insurance premiums have risen since last spring after a brief decline for some drivers in December 2020.
“More people are driving while intoxicated, and road accidents are also on the rise,” Ms. McDaniel said. “In 2021, compared to 2019, the number of deaths and injuries on the roads has doubled. This means that insurance companies are paying more and more for each claim. ”
A former assistant deputy secretary of the Treasury, she added that current supply chain problems and inflated prices show no signs of withdrawal.
“Auto parts are more expensive and take longer to get,” Ms. McDaniel said. “So instead of the insurance company paying for your rental car for one to three days, it may now take a few weeks for the bumper, windshield, new camera or electronic part to appear.”