R.J. Lehmann on Trump and Auto Insurance
ICLE Editor-in-Chief R.J. Lehmann was quoted by Insurance News Net about former President Donald Trump’s pledge to slash auto insurance rates. You can read the full piece here.
InsuranceNewsNet talked to Ray Lehmann, editor-in-chief and senior fellow at the International Center for Law & Economics, to find out how much impact a president and his administration could have on auto insurance costs. Premiums increased 18.6% from July 2023 to July 2024, according to Consumer Price Index, with the average cost of car insurance at $2,348, according to research from Bankrate.
“It’s interesting,” said Lehmann, “You look at the last decade going into the pandemic – about 2014 to 2017 – you were seeing average increases of about 7% a year. And then 2018 to 2021 – which includes the pandemic – was basically flat, maybe a 1% increase a year, but generally none. And then we’ve had several years in a row of these double-digit increases. If you normalize that over time, if we didn’t have the flat period, 7% a year would actually look normal.”
Rate hikes ‘more like catch-up growth’
Lehman said the recent rate jumps are ”more like catch-up growth.” During the earlier period going into the pandemic, said Lehmann, the industry was running combined ratios in the mid-nineties: 93%, 94%, 98%. (The combined ratio – also called “the combined ratio after policyholder dividends ratio” – is a measure of profitability used by insurance companies. A number below 100% means the company is making an underwriting profit. A number above 100% means the company is taking a loss, paying out more in claims than it’s taking in from premiums.)
“In the pandemic year of 2020, that dropped like a rock, because nobody was driving,” said Lehmann. [Insurers] had a combined ratio of about 89%. And then we’ve been over 100% the last three years with 2022 being 113%.
“So, 2022 was a really extraordinarily high year for combined ratio,” said Lehman. “It went down a lot in 2023, but was still over 100%. I think it’s probably like 102%. We’re seeing some normalization in the cost trends, but the overall drivers of things we’ve known is that you have social inflation and the cost of medical care for casualty claims.”