Auto Insurers Face Challenges Despite Rising Insurance Rates
Auto insurance rates have significantly advanced since April, but the market is still frail, and higher repair costs and prolonged repair time await insurers.
According to the Insurance Information Institute, $14 billion in premiums was refunded last year as the number of drivers hit a two-decade low. The majority of people had to stay at home throughout the COVID-19 pandemic, and car insurance companies had fewer claims to pay, which allowed them to offer refunds.
Even though the number of driving hours dropped by 13% in 2020, accidents with fatal outcomes rose by 7%, as stated by the National Highway Transportation Safety Administration. These accidents mean more claims for insurers to pay.
Car insurance prices will rise, but insurers must prepare for the upcoming cost increase as people return to pre-COVID driving levels, and the majority of drivers are out of practice, especially with navigating through heavy traffic.
The most recent data shows the car insurance index climbed 6.4% in April. The trend continued in May when the insurance rates gained 16.9%. This is the first increase since March 2020. Based on the government data from March, driving is up 19%.
Wells Fargo analyst Elyse Greenspan commented: “It’s still a good environment for consumers who are purchasing auto insurance. […] There’s just a lot of headwinds from a severity and a frequency perspective.”
Greenspan believes the situation will remain challenging for auto insurance providers throughout the fall, as commuters will return to work, people who used to take public transport before the pandemic will shift to driving, and students will need transportation as they head back to school.
As the economy is slowly recovering from the pandemic, prices have surged across a variety of sectors. Airline tickets rose by 7% in a month and 24% compared to last year. Household furnishings increased 1.3%, and car and truck rentals sale prices jumped 16.2% in April and 110% from last year.
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