By Telis Demos

By many rights, car insurance rates ought to start coming down for some drivers. But with the looming threat of tariffs, that process might take longer.

A sterling set of results from property-and-casualty insurance carriers in 2024, particularly in auto insurance, got analysts and executives talking about renewed competition for new business with lower rates this year. Some of that now appears to be on hold.

Auto insurers had seen a wave of underwriting losses during the years of high inflation after the pandemic, as the cost of repairing a car surged. In response, they started aggressively raising premiums, leading to a surge in profitability. The U.S. overall property-and-casualty industry's net combined ratio, a measure of underwriting margins, hit its best mark in more than a decade last year, according to S&P Global Market Intelligence.

But then in early April, personal auto insurers hit the brakes on filings with state regulators for lower rates, according to figures analyzed by economists at the Swiss Re Institute. In March, there were 482 requests filed with states for negative changes to personal auto insurance rates. In April, according to data available as of 30th of the month, there were just 95 such requests. In both months, the number of requests for rate increases outpaced those for decreases.

"It appears that personal auto insurers have stopped submitting material rate decrease requests following the tariff announcement," Swiss Re Institute economists wrote in a recent note, citing data through April 16.

Tariffs on autos and auto parts present what insurers argue is a strong risk of inflation to their claims costs. In mid-April, the American Property Casualty Insurance Association estimated that based on President Trump's reciprocal tariff proposal at the time, plus tariffs on Mexico, China and Canada, plus other goods-specific tariffs, annual personal auto insurance claims costs could rise $31 billion to $61 billion over a one-year period.

Where exactly tariffs will end up, and on what products, is of course a wild card. But auto insurers can't only just act in retrospect. In many states, they need to make requests to regulators in advance for rate changes. And they offer policies that often won't be repriced for six months or even a year.

State regulators can scrutinize not just higher rate filings but also lower ones. Insurance markets could be destabilized if insurers are underpricing risk to grab market share, then generating losses and having to pull back.

"We continue to see tariffs as causing insurers to be more cautious as to whether they opt to lower rates," says Tim Zawacki, principal research analyst for U.S. insurers at S&P Global Market Intelligence. "And, if they do, the magnitude of the decreases they propose."

Property-and-casualty insurer Progressive this week reported that its first-quarter combined ratio, which measures claims costs as a percentage of premiums, was 86% in the first quarter, down slightly from a year prior. Its personal-lines policies in force were up 18% compared with the same quarter a year earlier.

"While our focus has been on trying to maintain stable rates for customers, tariffs and other retaliatory actions will likely result in higher loss costs, which could result in a reduction in profitability and higher than currently anticipated rate increases throughout 2025 and 2026," Progressive wrote in a first-quarter regulatory filing.

Allstate Chief Executive Thomas Wilson told analysts last week: "We're going to manage through whatever the impacts of tariffs are, just as we did the inflation that came through the pandemic."

He added: "And if we need to raise prices, we will raise prices just like we did in the pandemic. Because with our margins, we don't have a lot of room to absorb. It's not like we're selling software with 80% margins."

Auto insurers might not be able to avoid tariff risk. But they can try to price it.

Write to Telis Demos at Telis.Demos@wsj.com

(END) Dow Jones Newswires

May 08, 2025 08:29 ET (12:29 GMT)

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