With more people driving, premiums are returning to their pre-pandemic levels.
Consumer prices have surged across many sectors in recent months and car insurance rates have helped drive the trend. The latest motor vehicle insurance index—tucked within the Consumer Price Index (CPI)—was up 16.9% in May 2021 vs. a year ago, following a 6.4% rise in April from the previous year. But rather than a large-scale price hike, says James Lynch, chief actuary and senior vice president of research and education at the Insurance Information Institute (III), much of what the country is seeing is simply a return to pre-pandemic premiums.
- Car insurance premiums are on the rise this year.
- Some of that is due to the fact that insurance costs declined in 2020 because consumers were driving less and insurers issued refunds.
- Premiums are now returning to pre-pandemic levels, as people drive more and are expected to file more claims.
- A rise in auto repair costs is also playing a role in the increases.
Insurer Refunds Cut Costs Last Year
A year ago last spring, car insurers were refunding what amounted to $14 billion in total to policyholders because of a big drop in miles driven—as well as in insurance claims— prompted by the pandemic. Those rebates pushed down the price of insurance, with rates remaining flat or declining, and the official inflation numbers reflected it, Lynch says. (The CPI considers policy premium refunds or rebates to be price reductions.)
So, while insurance prices may now be increasing relative to the lows experienced at that time, they haven’t widely surpassed average pre-pandemic costs quite yet and are nearly unchanged from June 2019, according to the motor vehicle insurance index’s historical database.
Meanwhile, a return to pre-pandemic driving levels will mean potentially more accidents and a higher number of costly claims for insurers to cover, the III notes.