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Carriers start to return 2021 premiums in some states, meanwhile other carriers start to raise rates

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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. 

Although the Insurance Information Institute (III) stated that there is nothing wrong with or inappropriate about using price optimization, 20 states including California have banned this practice. 

Allstate isn’t the only carrier to come under scrutiny in regards to price optimization; Farmers was ordered to pay a $52 million insurance settlement to California policyholders back in 2019. 

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. 

Lemonade also recently announced that it would be raising auto rates in Tennessee by 15% before even launching coverage capability in the state.

In addition, other major carriers like Travelers and Kemper are pursuing wide-ranging plans to increase auto rates across the country.

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Jasmine KimB2B Content Manager

Jasmine is The Zebra’s newsroom content writer. With a background in journalism, she reports on breaking news, trends, mergers and acquisitions, and financial reports related to the insurance industry.