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Insurance ‘significant source’ of inflation, feds say during testimony

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Federal Reserve Chair Jerome Powell mentioned the cost of insurance on inflation during testimony to the Senate Banking, Housing and Urban Affairs Committee last week. 

“It is clear that insurance of various different kinds, housing insurance but also automobile insurance and things like that, that’s been a significant source of inflation over the last few years, and it’s to do with a million different factors,” Powell said during the hearing held March 7. 

Powell went on to add that the Federal Reserve doesn’t have any regulation authority over the cost of insurance. 

Insurance oversight mostly happens at the state level with each state having its own process and set of regulations.

Powell added the federal government might have to step in if insurers continue to leave coastal markets. 

The inflationary rate of auto insurance climbed by 19.2% from November 2022 to November 2023, continuing to be above the total inflation rate of 3.1%, and contributed 0.5 percentage points to the rate, according to the latest Consumer Price Index (CPI) data from the U.S. Bureau of Labor Statistic (BLS).

Cambridge Mobile Telematics Senior Vice President Ryan McMahon noted on social media in December that the increase in insurance rates represents a significant portion of overall inflation.

“The impact of risk in auto insurance [has] always lagged behind in CPI data as insurers use trend data to file, and then seek approval for rate changes from regulators,” he wrote. “That said, the major deterioration in road safety since 2020 continues to show up as a contributor to inflation.”

Powell said inflation, overall, is moving closer to a 2% target as the economy starts to balance, such as supply and demand issues. He said if the economy continues to broaden, as expected, it is likely the Federal Reserve will relax policy restraints including lowering interest rates. 

“Reducing policy restraint too soon or too much could result in a reversal of progress that we’ve seen in inflation, and ultimately require tighter policy,” Powell said. “Reducing policy restraint too late or too little could unduly weaken economic activity and employment.” 

U.S. Sen. Sherrod Brown, (D-Ohio), said the current interest rates are only a burden on Americans. 

“Keeping rates too high for too long strangles the economy, no one wants this,” Brown said. “It makes it harder for smaller businesses to expand and hire more workers, undermining job creation.” 

He said interest rates don’t address the “real costs” in the economy. 

“The real cause for why costs remain too high: corporations price gouging to boost profits and make their shareholders richer,” Brown said. “Higher interest rates don’t force corporations to lower their prices but high interest rates are raising housing costs, hindering wage growth, stifling small businesses, we all know that.” 

The Wall Street Journal recently reported on insurers seeing stock jumps as they report annual profits after years of raising premium rates. 

Insurers claim pandemic losses from part delays, rising labor costs, and used car values are why they’ve hiked rates in recent years. The rate hikes continually receive criticism from consumer advocacy groups who’ve claimed insurers are overstating needs and overburdening the consumer. 

As insurers raise premiums, collision repair shops have simultaneously noted an increase in consumer responsibility for out-of-pocket expenses due to short payments. 

Insurers also remained one of the top industries spending on lobbying in 2023. It only trailed behind the pharmaceutical and electronics manufacturing industries, according to data released by Statista.

As an industry, insurance companies spent $157 million lobbying, pharmaceutical companies spent $378 million and electronic manufacturers spent $239 million.

Within the insurance market, those focused on healthcare spent the most in 2023 with Blue Cross/Blue Shield, America’s Health Insurance Plans, Cigna Corp and AFLAC Inc. topping the list, according to

American Property Casualty Insurance Association ranked 5th with $6 million spent on lobbying in 2023. USAA followed with $4 million spent.

Insurance 2023 Earnings  

Progressive netted $1.9 billion in Q4 2023, a 141% increase from the $826.4 million the company netted in Q4 2022, according to the company’s December earnings release

The company’s net income for 2023 was $3.9 billion, more than a 400% increase from 2022. The company recorded $721.4 million of net income earned in 2022. The 2023 annual amount is unaudited. 

It said it would continue to seek rate increases in New York, New Jersey and California this year, during a Q4 earnings call

While Allstate had a profitable Q4, the company ended the year in the red with a $316 million loss. Yet, the company ended with a 77% increase from the $1.4 billion loss in 2022.

Allstate plans to continue increasing auto insurance rates in at least 10 states in 2024, including New Jersey and New York, according to the company’s Q4 earnings call. 

State Farm reported a $3.5 billion increase in net worth for 2023. It reports $725 million in dividends to policyholders and issued a record $118 billion in new policy volume.

Its property and casualty (P&C) group of companies had an underwriting loss of $14.1 billion for 2023, compared to a $13.2 billion loss in 2022, according to a company press release.

It says the company witnessed an improvement in auto lines’ underwriting results, but homeowner-incurred catastrophe claims offset it. Auto insurance represents 64% of State Farm’s P&C companies.

State Farm vaguely mentioned it would take a “state-specific” approach to improve auto line profitability. 

Carrier Management recently reported that GEICO had a pre-tax underwriting profit of $3.6 billion for 2023. It saw a $1.9 billion underwriting loss in 2022. P/C reinsurance operations added another $2 billion in pre-tax underwriting profit, it said.

GEICO’s $3.6 billion pre-tax underwriting profit translates to a 90.7 combined ratio, more than 14 points below the 104.8 recorded in 2022,” Carrier Management wrote. “The only better year of underwriting performance at GEICO in the last 10 was 2020 when COVID shutdowns kept drivers off the roads. In 2020, GEICO’s combined ratio landed at 90.2, fueling a $3.4 billion pre-tax underwriting profit.

“GEICO’s combined ratio improvement in 2023 looks stunning against competitors Progressive and Allstate, which both posted double-digit premium jumps in 2023 but smaller improvements in their personal auto combined ratios.”


Photo courtesy of Dmitry Vinogradov/iStock

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