As insurance companies maneuver through the losses from 2021 and determine how to address changes in 2022, carriers are taking different approaches to how they handle policies across the nation. With inflation, the continuing supply shortage and the rise in road fatalities on the mind, carriers are asking for rate increases in the most disaster-prone states.
It has now become more important than ever for policyholders to know and understand what kind of coverage they have and what they are paying for so they can get the most out of their auto insurance policies as carriers slowly start to address rate changes state by state.
Potential price optimization practices in California
The California Department of Insurance and Consumer Watchdog claimed that Allstate was engaging in price optimization in October 2021, which means the carrier has been potentially charging higher premiums to customers that are unlikely to change to a competitor. Both groups have accused Allstate of giving smaller-than-appropriate discounts to the least price-sensitive customers, like those with clean driving records who have multiple policies.
Price optimization is the practice of using factors unrelated to risk and non-insurance databases to calculate auto insurance premiums to maximize company profits. It usually comes into play after an insurer uses traditional risk-based pricing strategies and increases a policyholder’s premiums based on factors other than a person’s loss risk.
States where carriers are returning premiums to policyholders
Auto policyholders in Missouri received approximately $25 million extra from their insurance companies last year after the Consumer Affairs Division and Market Regulation Division confirmed that carriers weren’t in compliance with the state’s insurance laws.
Michigan drivers saved a collective $4 billion on auto insurance premiums after the state’s no-fault law took effect in 2020. Since this law went into effect, more than 155,000 drivers purchased auto insurance — more than a third of those new policyholders had not had car insurance for at least three years. The Michigan Catastrophic Claims Association (MCCA) also announced that it would be issuing refunds of $400 per vehicle in 2022.
States where carriers are raising rates
According to a report by the American Property Casualty Insurance Association, insurance costs are accelerating even faster than the underlying rate of consumer inflation, as carriers have been dealing with unpredictable cat losses. The report states that insurers paid out more than $176 billion in losses between 2020 and 2021, the highest ever two-year total.
Progressive received approval for 15 rate increases in five states in January. This would lift the carrier’s premiums by $269.3 million.
Allstate was approved for 25 rate hikes across 13 states, pushing the company’s premiums up by $248.6 million. The carrier acknowledged factors like inflation, increasing auto prices and auto severity trends as the main reasons for the increase.
State Farm deployed 24 rate hikes, increasing premiums by $199.3 million.