Insurance trends in 2021 give early insights into 2022 changes

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As pandemic-induced inflation and supply shortages continue, countless sectors are experiencing price spikes. The insurance industry is no different. Several insurance companies, including Allstate and Geico, have already begun hiking their rates in line with these trends. But rising prices aren’t the only way the pandemic is affecting the insurance industry. COVID-19 has also encouraged companies to offer more online tools, such as the ability to file and track claims online.

If you’re wondering what these insurance trends mean for your wallet, our insurance and financial experts are here to walk you through the changes. Learn what this year’s insurance trends mean for you and your finances. 

What do you think customers can expect to see when it comes to purchasing car insurance policies this year?

The car insurance industry has shifted a bit since last year. Several providers are offering more online tools since policyholders couldn’t do business in person over the past two years. Many large insurance companies already offered online platforms pre-pandemic, but more providers are beginning to add features such as virtual claims processing. 

The insurance industry has also shifted in response to inflation. Several providers have already begun charging significantly more in premiums. Healthy levels of inflation cause prices across industries to rise about 2% each year. Currently, inflation sits at around 6.2%—the highest inflation spike since 1990. When the economy shuttered, restaurants, retailers and airlines closed. When these businesses reopened, Americans flocked to them, demand rose, and prices increased.

When thinking through what customers can expect to see this year, insurance expert Zachary Finn emphasized that your personal characteristics still matter most when a company is determining your insurance premium.

“Like most questions involving insurance, the answer is ‘it depends.’ Are you driving more or less? Are you driving better or worse? Did you flee the confines of quarantine in the city for a spread in the country? And, perhaps easiest to control, how and where are you buying your auto insurance? Generally speaking, insurers had better underwriting results in 2020, due mainly to less folks on the road. Though the auto insurance industry still did not achieve an underwriting profit. Combined ratios for auto insurers have not been below 100.0 since 2010, according to Best’s Market report, “Near-Term Profitability Still Elusive for U.S. Commercial Auto Writers.” Too many distracted drivers multiplied by too many expensive rear-end sensors and cameras equals higher frequency of losses with higher severity of damages. Personally, I believe insurers only sell auto insurance these days as a loss-leader to open up other cross-selling opportunities. You don’t have to buy cyber or life insurance, but you can’t drive without auto insurance. This is a product that is used simply to enable other insurance transactions. This is why Flo loves her Progressive bundle so much. If you drive and buy your auto insurance status quo to how you did in 2021, the price, like everything else, is going up. Unlike a PS5 or Xbox, at least there will be product availability.”

— Zachary Finn,Director of Commercial Risk Management at Henriott Group, Inc.

When buying insurance, the hardest part of the process is finding the right policy for your needs. Additional car insurance coverage increases your car insurance premium, but not having enough coverage could harm your finances if you’re in an accident. If your policy limits don’t cover the total cost of an accident, you may end up having to pay for damages and medical bills out-of-pocket. The median household bank account balance is $5,300, according to the Federal Reserve, while a NOLO survey showed around half of their readers received between $3,000 and $25,000 after an accident. As you can see, paying for a car accident out-of-pocket could significantly decimate your bank account.

“My advice would be to make sure you understand what you’re currently paying your insurance company, and whether or not that rate and coverage level is right for you. As always, you should look at opportunities to bundle and/or modify coverage if circumstances in your life may have changed. There are several comparison marketplaces that can help you understand varying coverage levels and what you should be paying on average, although every consumer is different.”

— Michael Doughty,Senior Vice President, Bankrate Insurance

What is the most important coverage to include in an auto policy?

Ensuring you have enough coverage is important, but deciding what kind of coverage to have is equally vital. Many insurance experts recommend purchasing full coverage insurance, which is comprised of collision coverage and comprehensive coverage. Collision coverage pays to cover damages to your vehicle from an accident or replace the vehicle entirely. Comprehensive coverage pays out to cover damage to your vehicle caused by vandalism, theft, falling objects, or most things that could happen to your vehicle other than a collision.

Most states have minimum liability limits that dictate the minimum amount of insurance you need to drive legally. Liability insurance includes property damage liability and bodily injury liability. Some states also require drivers to hold personal injury protection (PIP), uninsured/underinsured motorist coverage and/or medical payments coverage. Whether or not your state has higher or lower requirements for minimum car insurance coverage, most insurance experts recommend going with full coverage insurance instead since it can better protect your finances if you get into an accident.

Other common policy additions include gap insurance, which pays the difference between what you owe on your vehicle and how much it’s worth. Roadside assistance is another popular coverage type that gives drivers peace of mind, knowing that if they were to run out of gas or need a tow, they’d be covered. 

Choosing the exact coverage types you need is a personal decision and depends on your budget, preferences and goals.

“Coverage needs vary based on individual needs. Most states require that you purchase at least minimum levels of bodily injury liability and property damage liability. Some states also require personal injury protection (PIP) or medical payments coverage, uninsured motorist coverage, or underinsured motorist coverage. Meeting or exceeding state requirements is important so that you stay legal, but you may also need full coverage — which adds comprehensive and collision coverage — if you have a loan or lease, if your vehicle is newer or relatively expensive, or if you don’t have the funds to repair or replace it out of pocket.”

— Cate Deventer,Insurance Writer & Editor at Bankrate

Should you add optional coverage to your auto insurance? Why or why not?

As we discussed, your finances will likely fare better if you opt for full coverage insurance rather than just the minimum liability requirements mandated in your state.

You may also want to consider your individual circumstances. If you’re an Uber or Lyft driver, you may want to consider rideshare coverage. If you have a pet, you can purchase pet injury coverage, which pays out to cover vet bills up to policy limits in the event of a covered accident. Some pet injury policies also provide coverage for funeral expenses and the cost of purchasing a new pet. 

You may want to pay special attention to new car replacement coverage and gap insurance if you have a new vehicle. If you finance or lease your vehicle, gap insurance pays the difference between what you owe on it and what the vehicle is currently worth. New car replacement coverage pays out to purchase a vehicle of the same make and model if yours is totaled. 

If you decide that you can live with lower policy limits, just make sure that you’d be able to pay the out-of-pocket expenses if you were to get in an accident. It’s not uncommon for damages and medical bills to cost tens of thousands of dollars after an accident. Even though paying a higher monthly premium may be difficult, it could protect your finances in the future. 

“Having optional coverages such as collision, comprehensive and uninsured/underinsured motorist provides a much greater level of financial protection for drivers. Typically, the cost of adding these coverages is not very expensive and could even reduce your additional premium by selecting higher deductibles on collision and comprehensive. However, if you go the route of higher deductibles, please make sure you are financially prepared to pay more out of pocket.”

— Mark Friedlander,Director of Corporate Communications, Insurance Information Institute

What kind of impact do advanced technology and safety features have on insurance rates, and is this something we will continue to see in the future?

While some insurance companies give drivers discounts for driving vehicles equipped with safety technology, this tech certainly isn’t decreasing car insurance rates on average. 

“I don’t see advanced technology and safety features really having an impact on insurance rates currently as the rate and severity of accidents is not decreasing. In fact, [technology] may be contributing a bit to rate increases because it increases the cost of repairing a vehicle. As an example, a simple bumper ding can cost several thousand dollars to repair for a vehicle with advanced technology, such as sensors in the bumper that need to be recalibrated or replaced. A simple windshield replacement that used to cost a few hundred dollars can now cost upwards of a thousand dollars for sensor-equipped windshields due to sensor recalibration or replacement. I do think we’ll see even more advanced technology coming out in the following years, including self-driving cars, but in the near term, until we can find a solution to distracted driving from cell phones and car screen use while driving, the accident trends will unfortunately continue.” 

— James O’Brien,Insurance Agency Owner at NY Insurance Hub

Are there any changes to the customer experience prompted by the pandemic that are here to stay?

Across industries during COVID-19, companies expanded their use of technology to substitute for in-person business. The insurance industry is no different.

“The virtual claims process has been essential throughout the pandemic as auto insurers engaged COVID safety protocols for their employees and customers. Insurers are expanding their use of artificial intelligence to process auto claims. AI helps insurers process claims faster and gets their customers back on the road quicker following an accident. Many insurers now provide user-friendly apps where the policyholder can file claims, upload damage photos and manage the entire claims process virtually.” 

— Mark Friedlander,Director of Corporate Communications, Insurance Information Institute

Conclusion

The pandemic prompted the insurance industry to pivot in a couple of key ways. First, policyholders will likely see insurers improving their digital platforms. Claims filing and getting quotes will become easier to do virtually.

In addition, prices will likely continue to rise due to climbing inflation. Importantly, car insurance rates are still determined by a driver’s individual circumstances. The best way to keep your car insurance premium low is still to keep a clean driving history, a high credit score (in some states) and constantly look for discounts that you could be missing.

Do you want to know more from our experts? Send us your questions at info@bankrate.com.

Written by
Lizzie Nealon
Insurance Writer
Lizzie Nealon is an insurance writer for Bankrate. Her favorite part of the job is making home, auto and life insurance digestible for readers so they can prepare for the future.
Edited by
Insurance Editor