Personal auto insurance premiums have recovered to pre-pandemic levels, although various factors may continue to raise premiums.
At the commencement of the COVID-19 outbreak, auto insurers handed policyholders roughly $14 billion in cash refunds and account credits, anticipating fewer accidents due to the economic downturn.
While the number of miles driven and the number of accidents initially reduced, the frequency and severity of incidents increased over time. Traffic deaths have surged after decades of steady decreases.
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While personal auto loss ratios fell sharply in 2020, they have steadily increased since then, surpassing pre-pandemic levels.
This loss trend is projected to continue as there are more drivers on the road and replacement parts costs continue to rise.
Fatalities deviate from a long-term pattern.
The current surge in auto mortality deviates from a four-decade downward trend, according to the National Highway Traffic Safety Administration (NHTSA). Despite an increase in the number of people driving and overall miles driven, those drops happened.
The National Highway Traffic Safety Administration attributed the improvements to factors such as increased seatbelt use, decreased drunk driving, and developments in car safety such as air bags and electronic stability controls. The number of persons died in drunk driving accidents declined by 4% in 2018, while the number of people killed in rollover crashes decreased by 10%, according to the National Highway Traffic Safety Administration.
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Losses and premiums
Insurers must set premiums that are commensurate to the risks they cover in order to stay afloat. The car, the policyholder, the locality, and the vehicle's use, as well as how these components affect the insurer's loss experience, are all factors in determining auto premium pricing.
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Changes in rates should, in an ideal world, correspond to changes in loss experience. These two measures for the entire business tracked quite closely until the outbreak began, as illustrated in the graph below. The pandemic-related disruptions of 2020 generated instability in both measures, with losses being more irregular than prices, which, as previously noted, have rebounded to pre-pandemic levels.
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Profitability of personal auto insurance
A decent profit must be made by any business.
Insurers' underwriting profitability is measured using the "combined ratio," which is calculated by dividing the sum of claim-related losses and all expenses by earned premium. A profit is demonstrated by a combined ratio of less than 100%. A ratio greater than 100 percent indicates a loss.
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The automobile insurance line, which has been modestly profitable since 2018, is edging back toward unprofitability as dangerous driving behaviors that began with the pandemic have continued, as have cost trends that predate COVID-19. Auto insurance profitability in 2020, a year with significantly fewer cars on the road, was at its highest level since 2006.
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