Why Are Car Insurance Rates Still Going Up?

Despite driving well--yielding politely, obeying every stop sign, and racking no tickets or accidents--your auto insurance premiums seem to have steadily risen in recent years. It’s not just you though. Since about 2012, rates to insure vehicles have gone up in all states and for all drivers, even including those with spotless driving records and no claims.

And not by negligible amounts. Since 2012, the consumer price index (CPI) for auto insurance has gone up by 21.5%, compared with a rise in the overall consumer price index of 4.5% over that same five-year period. It’s the largest five-year growth of auto insurance costs since the early 1990s, when costs grew by about 30% between 1989 and 1993.

The Profit Challenge

The insurers aren’t raising rates for the sake of just charging you more--there are rules against that, actually. Instead, the driving force in the upward march in premiums is an auto insurance industry that’s been finding it increasingly difficult to sustain healthy profit margins.

Of the top five insurers, only GEICO and Progressive have managed to maintain profits, and the amounts by which they’re in the black have trended downward over the last seven years. It’s even worse for some other insurers  like State Farm. The single largest auto insurer in the country has seen its revenue from premiums rise by 26% since 2010, but also suffer a 35% increase in the cost of covering the cost of claims in the same time period.

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Declining Profit Margins Have Characterized the Auto Insurance Industry Since 2010

Another way to look at these numbers is through the combined loss ratio: the ratio between underwriting losses (as well as all other business expenses) and written premiums.  In 2010, the average direct combined loss ratio was 99.7% amongst the nation’s ten largest insurance companies meaning they were just barely making a profit off auto insurance premiums. In 2016, the ratio ballooned to a whopping 107.1% average, meaning the major insurers were losing 7% more than earning last year.

So what's causing the insurers to lose so much money?