Auto Insurance Rates Spiral, But Run A Poor Second To Inflation

Post Date 3.11.2012 – From a profit standpoint, auto insurance companies certainly have never excited investors.  In a study of 65 major industries, one investment firm ranks auto insurance as third from the bottom.  Average profits of auto insurance companies is 4.4% of net worth. Even with car insurance rates based on previous experience modeling, car insurance companies hardly expect underwriting profits.  Actual experience during periods up to five years prior to the car insurance rate change is used without much regard for inflationary trends. Therefore car insurance claim costs consistently climb faster than insurance rate increases.  With the growth of automobile manufacturing and ownership after World War Two through the 1950’s, car insurance companies have depended more on outside  investment more than underwriting profit. Diversion of still more investment income to offset underwriting losses cannot help crippling the insurer’s ability to adequately ledge against more and higher inflation.


Michael E. Dortch
President &  Managing Agent
Corporate Home Office
618 South Broad Street
Lansdale, Pennsylvania  19446
(800) 807-0762  ext. 602