Auto liability insurance is mandatory almost everywhere in the United States. Although few motorists question the product's necessity, many are anxious about paying for it due to the growing distrust of private insurers. Many policyholders feel uncertain about whether they can rely on their insurance carriers in their hour of need. Countless horror stories reinforce the perception that insurers would drag their feet when it's time to pay or unfairly deny valid claims altogether — and get away with it.
Significant rate hikes erode any remaining goodwill American adults have toward auto insurance companies. In a car-dependent society, being forced to spend more on an inescapable auto-related expense would leave a bad taste in people's mouths. Charging higher premiums is justifiable and even vital in many cases, but is the insurance industry blameless for the public's prevailing sentiment?
An Epidemic of Excess Premiums
Car insurers had windfall profits in 2020. The pandemic compelled different levels of government to impose lockdowns to help curb the spread of COVID-19, which reduced the number of miles driven. Less vehicular traffic meant fewer car crashes and insurance claims, shrinking insurers' risk exposure overnight.
The business shutdowns and stay-at-home orders caused by the coronavirus outbreak economically affected tens of millions of policyholders. In the spirit of solidarity, auto insurance carriers provided relief to customers.
In April, over 80% of insurers announced that they would rebate policyholders more than $6.5 billion over the next two months. State Farm credited customers an average of 25% of premiums from March 20 to May 31. American Family paid customers $50 for every insured vehicle in April. Farmers Insurance gave a discount of 25%, while Progressive refunded about 20% of all premiums paid for April and May.
In addition, many insurers temporarily paused policy cancellation due to nonpayment and waived late fees in the spring of 2020. Most premium relief programs ended in June, but some providers continued to entertain requests for flexible payment plans or similar concessions on a case-by-case basis. They were particularly considerate of financially distressed customers, especially those furloughed or laid off.
The Consumer Federation of America (CFA) welcomed the news. The nonprofit noted that car insurers would've overcharged customers whose premiums were based on driving 1,000 miles monthly and imposed rates considered unreasonable due to the sharp decline in vehicular accidents had they not returned a portion of their revenue to policyholders.
While the premium givebacks were a positive gesture from the industry, the CFA claimed that auto insurers shortchanged policyholders. In August 2021, the pro-consumer group and the Center for Economic Justice (CEJ) analyzed the insurance providers' premiums and claims data. They found that the companies collected $42 billion in windfall profits and returned less than a third of them to payers.
About $30 billion in excess premiums remained in the insurers' coffers. The CFA and CEJ claimed that the insurance carriers used the money to inflate the payouts to their senior executives and stockholders.
Government Inaction — Regulators Becoming Bystanders
The CFA and CEJ had been vocal about the possibility of excess premiums as early as March 2020. The organizations foresaw that the then-current insurance prices would be too high when governments prohibited people from moving freely across jurisdictions.
Granted, the COVID-19 outbreak was a black swan event, and no underwriter could have predicted that American roads would be virtually empty for an extended period. However, the regulators could have stepped in and ordered car insurers to return some of the premiums they raked in during the early months of the pandemic.
The CFA and CEJ wrote letters to state insurance regulators tasked with ensuring rates aren't excessive throughout 2020, urging them to take action and require car insurers to return more of their profits. However, the warnings were brushed aside. The consumer advocates asserted that virtually all regulators did nothing to stop insurance companies from pocketing excessive premiums.
A Stern Counterstatement
The American Property Casualty Insurance Association (APCIA), the national trade association representing auto, home and business insurers, denied the findings of CFA and CEJ and called them misinformation.
In a statement released a day after the CFA and CEJ's report came out, APCIA Vice President David Snyder said everything about the consumer advocates' analysis was incorrect. Snyder said that most of what the CFA and CEJ label as profit was expenses paid to sell and service policies, handle claims, cover regulatory fees and pay taxes. The vice president added that auto insurer profits accounted for just 2% of each premium dollar.
Snyder explained that the number of miles driven quickly resumed to pre-pandemic levels after governments lifted the lockdowns — only this time, motorists' driving habits worsened. Data from the U.S. Department of Transportation's National Highway Traffic Safety Administration (NHTSA) backed this claim.
According to the NHTSA, fatal crashes jumped by 6.8% in 2020. About 45% of the drivers of the passenger vehicles involved were speeding, alcohol-impaired, not wearing a seat belt or any combination of the three risky behaviors.
A Period of Underwriting Losses
The property and casualty segment of the insurance industry was in the red in 2022 and 2023. Rick Gorvett, a Casualty Actuarial Society (CAS) fellow, described the two-year period as part of the insurance business's multiyear cycle. The market was soft, partially driven by competition and the ebb and flow of alternative risk management mechanisms.
Supply-chain disruptions contributed to the underwriting losses. The pandemic exacerbated the existing chronic semiconductor shortage due to lockdown-related production downtime, consequently limiting new vehicle production. Lower car inventories drove up the cost of new and used automobiles, ultimately increasing the value of assets insurers have to cover. Rising repair costs due to modern vehicle designs added more burden to insurance companies.
Gorvett pointed out that the social factors, like increased litigiousness, inflated insurance losses. A 2024 joint study by Triple-I and the CAS found that auto liability losses and defense and cost containment expenses spiked by $76.3 billion to $81.3 billion from 2014 to 2023 due to the involvement of billboard attorneys in claims and considerable tort awards.
A Loss-Loss Scenario
The U.S. Bureau of Labor Statistics said that vehicle insurance prices skyrocketed by 17% in 2023 year-over-year, outpacing those of food away from home, housing and electricity by a mile.
Such inflation happened at a time when car insurance underwriters were seeking sustainable rate adequacy levels. Considering that a 2019 study revealed that Americans already overspend about $37 billion yearly on auto insurance, the 2023 figure meant that car-related expenses made up a larger chunk of household budgets.
Elevated crime rates also fueled the 2023 premium hike. 2022 was the worst year for vehicle theft since 2008. Data from the National Insurance Crime Bureau showed that thieves stole over 1 million automobiles that year, some of which ended up in the hands of vehicle traffickers operating in foreign countries.
Underwriters had to factor crime rates into the equation. Underwriting decisions affected customers living in hot spots, whether or not they had fallen victim to car theft.
So consumers and insurers both lost.
The Post-Pandemic Premium Surge
Since the pandemic, 2024 has been the most profitable year for personal auto insurance carriers. The industry segment recorded a net combined ratio of 95.3 and posted a 13% increase in net written premiums year-over-year.
Pundits credited the improvement in underwriting performance to pricing realignment. Efforts to align auto insurance prices with soaring risk levels and implement more effective control loss measures paid off.
Low claim frequency was another 2024 highlight. While the number filed remained below pre-pandemic levels, claim severity was high. Shifting attitudes toward car insurance can explain these two phenomena.
The Jerry 2025 State of the American Driver Report revealed that more consumers are motivated to shop around after seeing rates balloon by over 50% over the past three years. In 2024, 55% of motorists sought better deals in the past 12 months, and some changed vendors to obtain more affordable rates.
Moreover, many drivers bought less coverage and agreed to higher deductibles to lower their premiums. These decisions suggest that more policyholders are keener on filing claims to cover larger losses. Prudent consumers know their claim histories can drive up their future rates, so they only want to call their insurer when it counts the most.
Increasing Auto Insurance Rates Legally
The compulsory nature of car insurance policies makes premium hikes unpopular at best and controversial at worst. Policyholders almost always feel the pinch, regardless of whether auto insurance turns a profit. Judging by how effective the legal system can be when compensating the insured, insurers must navigate the regulatory landscape carefully to raise premiums accordingly without breaking the law.
