Surging gas prices are not the only reason it may cost more to hit the road this spring.
Citing everything from labor shortages to supply chain issues, several major auto insurance companies have implemented sharp rate increases that could add upward of $100 to annual premiums for Illinois drivers navigating the waning pandemic landscape.
“The auto industry has been greatly impacted by inflation, whether you’re at the pump paying almost 50% more from a year ago or buying a used car,” said Sarah Foster, a Bankrate.com analyst. “What’s really interesting about auto insurance is that it’s a place where inflation is hiding that a lot of Americans might not expect. And it really all has to do with the pandemic.”
State Farm, Allstate and Progressive — the three largest auto insurers in Illinois — recently filed for rate increases with the state’s Department of Insurance ranging from 4.8% to 12%, a dramatic shift from the rebates and rate cuts that proliferated during the pandemic lockdown in 2020.
Foster said auto insurance companies are rebuilding their claim reserves and responding to increased coverage costs as drivers return to the roads in numbers approaching pre-pandemic levels. The biggest drivers of higher auto insurance premiums are increased prices for new and used cars, supply chain disruptions, the labor shortage and rising medical costs, she said.
“Hospital care is up about 3% and vehicle parts are up about 11% from a year ago, and these insurance companies have to cover these claims,” Foster said. “It’s likely for most drivers that insurance is going up compared to even pre-pandemic levels, because inflation is squeezing the insurance companies.”
Bloomington-based State Farm, the state’s largest auto insurer, filed for a 4.8% rate increase in January. The increase took effect Monday, and equates to an average annual increase of $36 per policy in Illinois, State Farm spokeswoman Angie Harrier said.
In 2020, State Farm cut auto insurance rates in the state by 13.7% as many drivers parked their cars at the onset of the COVID-19 pandemic and stay-at-home orders. In February 2021, State Farm reversed course, raising rates by 4.2%.
“We are continuously monitoring and adjusting to trends to make sure we’re accurately matching price to risk,” Harrier said in an email Monday. “Our approach is to make incremental adjustments based on driving behaviors to help minimize the impact to customers.”
State Farm’s auto insurance rates in Illinois remain below pre-pandemic levels, Harrier said.
Northbrook-based Allstate, the state’s second largest auto insurer, went big in January when it filed for a 12% rate increase, essentially unwinding its rate cuts over the past two years.
In the spring of 2020, Allstate issued about $1 billion in rebates to auto policyholders nationwide with its “Shelter-in-Place Payback” at the onset of the pandemic. Allstate cut rates in Illinois by about 5% in January 2021, but raised them by 2.5% in September, according to state filings.
With the latest increase, which went into effect Feb. 17, Allstate’s auto insurance rates are now above the pre-pandemic level.
“Increased driving, accident severity, inflation and repair costs are causing auto insurance rates to go up,” Allstate spokeswoman Mallory Vasquez said in an email Tuesday.
Even though auto rates are rising, consumers that are driving less due to remote work can cut their costs through the company’s pay-per-mile insurance plan, Vasquez said.
With most of its 7,892 employees in Illinois working remotely during the pandemic, Allstate reached an agreement in November to sell its Northbrook headquarters for $232 million to an industrial developer that plans to turn the corporate campus into a massive logistics facility. In January, Allstate purchased a 10-story building at 29 N. Wacker Drive in Chicago’s Loop for an undisclosed price.
Vasquez said Allstate’s Chicago offices at River Point and Merchandise Mart will reopen soon, and that the insurer is also “exploring options” for new office space in the Northbrook area, to accommodate employees who want to work out of an office.
Ohio-based Progressive, the third-largest auto insurer in Illinois, filed in January for rate increases ranging from 6.3% for its direct customers up to 10.1% for those who use an agent, according to state filings. A company spokesman did not respond to a request for comment Monday.
Beyond inflation, changing driving habits, which have turned the less-crowded roadways into something of a demolition derby, may also be affecting insurance rates, Foster said.
In Chicago, the number of drivers commuting downtown daily last year was 21% below 2019, according to an annual traffic report by INRIX. But the roads have become increasingly dangerous during the pandemic, with 1,363 traffic fatalities across the state last year, up more than a third from 2019, according to the Illinois Department of Transportation.
“Not only were these companies refunding premiums, which was wiping out their claim reserves, but they’re also contending with the fact that fatalities are up,” Foster said. “All of this is feeding into each other and most likely going to impact how much drivers are spending on their insurance this year.”
