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Economists see car insurance rates climbing in 2022

Masks are coming off, COVID restrictions are coming down and motorists are hitting the road — and running straight into higher car insurance rates that show no sign of declining this year, economists say.

Pent-up demand for new and used cars, coming after a year of pandemic-reduced driving, is boosting risks for auto insurers, who pass the cost of that risk to consumers regardless of their accident and claims records.

While automobile insurers normally increase their annual rates by 3% each year, recent studies from Insurify and S&P Global Market Intelligence show that they rose 12% in 2021. Insurify predicts they will rise another 5% this year.

“The U.S. auto insurance industry had an underwriting profit in 2020 for the first time in a decade, as drivers stayed off the roads due to the pandemic,” said Hans Dau, founder of Mitchell Madison Group, a business consulting firm. “Now, high general inflation and ever higher increases in used and new car prices clearly drive up claims costs for insurers, given that claims frequencies and severities are returning to normal.”

Mr. Dau added that an expected interest rate hike in March, which will cause losses in property and casualty insurers’ $2 trillion bond portfolios, is also “an important contributing factor to higher premiums.“

“P&C insurers have three times more invested assets than premium revenue, as they typically break even on underwriting and make all their profit on invested premiums, “Mr. Dau said.

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