Inflation will cause the price of all insurance policies to rise, but you may have noticed that your auto insurance has risen more than normal lately. Most lines of insurance cycle between soft and hard markets over a number of years, which has a direct impact on the price you pay. Now, the auto insurance market is currently hardening after many years of a soft market, which has resulted in higher prices for personal auto policies.

Between 2011 and 2016, competition between insurance carriers created a soft, buyer-friendly market. Since then, however, a number of factors have caused carriers to exit the auto market or increase their prices to maintain profitability.  

More Drivers Lead to More Accidents

Throughout the Covid-19 pandemic, we saw the number of drivers on the road decrease dramatically. As the number of drivers on the road decreased, the average speed people drive increased, which led to an increase in “severity”, as it is referred to in the world of insurance actuaries.  Essentially, during covid, fewer drivers on the road meant fewer accidents, or “frequency,” but higher average speeds meant increased severity. As the world normalizes, the number of drivers on the road has gone back up, and the frequency of claims has increased with it.  Interestingly, average speeds have not returned to pre-covid levels, leading to both increased frequency and severity of claims, providing upward pressure on rates. 

The number of accidents has also risen because of an increase in unsafe driving practices. According to the AAA Foundation for Traffic Safety, about 87% of drivers admitted to engaging in at least one risky behavior while behind the wheel, including using their phones and not wearing seat belts.

Claim Severity

The number of accidents isn’t the only factor affecting auto insurance claims, and average speeds isn’t the only factor driving claim severity. The size of the average insurance claims has steadily increased in recent years. The three largest drivers of claim severity include the increase in the costs of medical care, auto repairs and auto parts. According to a recent study by CarMD, the largest repair cost comes from replacing the expensive technology that’s common in newer vehicles, as body shops struggle to afford the special equipment and training required to perform the repairs. Exacerbating the situation are supply chain issues and labor shortages which can slow down the time it takes to repair a vehicle, which increases the insurance company’s cost of providing rental cars.

Uninsured Motorists

Auto insurance is required in most states as a way to cover your own liability and provide compensation to others in the event that you’re responsible for an accident. Despite this, approximately 13% of drivers drive uninsured. 

Unfortunately, it’s the drivers who follow required insurance laws who end up paying the price in the form of uninsured motorist coverage. According to the Insurance Research Council, uninsured claim payments have risen by 75% over the past 10 years, resulting in a $14 premium increase for every insured individual.

Autonomous Vehicles

Although autonomous vehicles that can drive themselves have the potential to save lives and reduce injuries, they could also decrease the personal automobile insurance sector to less than 40% of its current size. While this change should be gradual, many insurance carriers have been slowly increasing their rates in anticipation of the shrinking market.

Insurance Fraud

Insurance is meant to protect you in the event of an accident, but many criminals try to illegally use insurance policies for their personal gain. Most fraud schemes involve a policyholder faking an injury and blaming a third party, or conspiring to cause an accident that can be blamed on someone else. 

Although insurance carriers attempt to uncover the truth during all insurance claims, the Insurance Information Institute estimates that insurance fraud costs the United States $32 billion per year. Unfortunately, much of this cost is transferred to law-abiding policyholders. 

How Can You Save During a Hard Market?

With auto insurance premiums on the rise for the foreseeable future, it’s more important than ever to be aware of the steps you can take to save on your premiums.


Contact us at 513.561.5311 to discuss your options for saving on your auto policy, even during a hard market.