Auto insurance rates have been going up for a while, but rising rates can’t last forever. When competitors lower their rates, you will feel pressure to do the same. By deploying innovative risk selection strategies, you can compete confidently and profitably.

When Will Auto Insurance Rates Go Down?

For the time being, auto insurance rates are still rising. According to MarketScout, personal auto insurance rates were up by 5.3% in the fourth quarter of 2024, which was higher than the rate increases for homeowners insurance.

However, this trend could start to reverse soon. Fitch Ratings says that U.S. personal auto insurers saw improved performance in 2024, and this was expected to continue into 2025. Underwriting improvement is attributed to both moderation of claims severity and recent price increases.

As insurers return to profitability, their policyholders are increasingly unhappy with the high cost of auto insurance. Repairer Driven News says that consumer advocacy groups have criticized insurers for rate hikes. Drivers are also frustrated. According to the J.D. Power 2024 U.S. Insurance Shopping Study, premium increases and poor customer satisfaction scores have triggered a surge in insurance shopping, with 49% of U.S. auto insurance customers saying they are actively looking for a new plan. Meanwhile, USA Today says an increasing number of drivers are opting to go without insurance.

It seems that rate hikes can only go so far. As criticism mounts, and as more drivers drop coverage or switch insurers, carriers will feel the pressure to lower rates. When the rate slashing begins, insurers will have to scramble to stay competitive.

Claim Severity Surge Continues

Repair costs have surged due to both overall economic inflation as well as repair shop backlogs, supply chain issues, rising labor costs and more expensive vehicles. Reckless driving and increased litigation costs have also been factors impacting claims costs.

The 2024 LexisNexis U.S. Auto Insurance Trends Report revealed that bodily injury claims severity has increased by 20% since 2020, while material damage has increased by 47%. While reckless driving was not the only cause, the report did note that major speeding violations were up by 36% since 2019, and distracted driving was up by 10% from 2022 to 2023.

Auto insurers are beginning to see improvements in underwriting profitability, but loss severity is still a threat. Even if some of the trends driving up losses – such as reckless driving and attorney involvement – reverse, expensive repairs and total losses may become more common due to the rise of sophisticated vehicle tech and electric vehicles. 

How to Compete Confidently and Profitably

It’s clear that auto insurers need to find a way to maintain profitability when rates fall. The solution lies in accurately predicting rate adequacy at a policy level.

How can your company ensure the rate adequacy of every risk?

One method is to turn off entire segments. For example, insurers might stop underwriting certain vehicles, zip codes or driver classes that are associated with high loss ratios. This may be an obvious way to address loss ratios, but it comes with some major downsides. For one thing, it’s hard to grow when you’re turning off entire segments. Another problem with this approach is that it lacks granularity. Within every segment, there’s a great deal of variation – some risks are adequately rated and others are inadequately rated. Why pass on all of them?

The other, more innovative method involves leaving all segments turned on, using machine learning technology to accurately predict the rate adequacy of each risk, and then straight-through processing the adequately-rated risks within every segment.

The second approach is obviously preferable, but historically, it’s been difficult if not impossible to accomplish. Soteris has changed this.