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Triple-I blog | Why passenger car insurance prices are likely to continue to rise



Personal car insurance premiums have returned to pre-pandemic levels, but several trends are likely to maintain upward pressure on prices, according to a new Triple-I Issues Brief.

At the beginning of the pandemic, car insurance companies ̵

1; which predicted fewer accidents in the financial lockdown – returned about $ 14 billion to policyholders in the form of cash repayments and overdrafts. But while mileage decreased and the accident frequency initially decreased, the frequency and severity began to increase rapidly again. Traffic deaths also increased, after decades of steady declines.

While insurance companies’ personal car loss rates fell sharply and sharply in 2020, they have since climbed steadily to exceed pre-pandemic levels. With more drivers on the road and spare parts climbing, this loss trend is expected to continue.

Car premiums reflect a number of factors that contribute to an insurer’s loss experience. In a world of perfect information, speed changes would correlate perfectly with changes in loss experience. As the diagram below shows, until the pandemic, these two measured values ​​for the overall industry followed quite closely. The disturbances in 2020 led to volatility for both, and the losses have proven to be more volatile than pricing.

Barely profitable

In order to remain profitable, insurance companies must set premiums at levels that are appropriate for the risks they cover. The insurers’ insurance profitability is measured with a “combined ratio”, which is calculated by dividing the sum of claims-related claims and all costs by the premium earned. A total cost percentage below 100 percent indicates a profit. A ratio above 100 percent indicates a loss.

As the diagram above shows, personal car insurance has been a barely profitable line for the industry for several years. If the recent accident and compensation cost trends continue, the upward pressure on prime interest rates is likely to continue.

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