Supply & demand imbalance raising costs
It seems the price of most everything is going up in this ongoing Coronavirus pandemic. Now it’s taking a toll on personal automobile insurance rates, with at least one major carrier reporting its raising rates because of claims severity caused in part by more severe accidents, microchip shortages, and rising used car prices.
The early days of the pandemic last year shut down major segments of the economy here in the U.S. and around the world, including many manufacturers. Now that most businesses have fully reopened and consumers are once again out and about, pent-up demand for goods and services has soared, creating a big demand that can’t be filled due to the current supply shortage.
A computer chip shortage reduced new car production and increased demand for used vehicles. Progressive Insurance, in a recent earnings conference call, reported it’s had to raise auto rates by an average of 5% in 11 states due to increased used car valuations, as a result. This follows Progressive lowering rates last year and returning more than $1 billion in premiums to its policyholders who were driving much less during the initial pandemic.
The company noted that with fewer miles being driven, the roads were more open and driving speeds increased. As we know, higher speed accidents usually mean greater damage claims and personal injury costs. Those too, were factors in the company’s recent rate increases. For those markets where the company is unable to gain regulatory approval for rate increases, it reports it is tightening underwriting instead to compensate.
As we reported in a May newsletter, the pandemic has messed with the supply and demand of housing, too. The cost of lumber and other construction materials have soared during the economic recovery, raising the price of a new single-family home by $24,000 at the time. As prices of new homes go up, so too does the cost of homeowners insurance needed to protect them.
LMA Newsletter of 8-9-21
