A recent study conducted by the Insurance Research Council (IRC) has revealed that regulatory processes for approving personal auto insurance rates have become significantly more burdensome since 2010. According to the IRC, these protracted processes are creating barriers that delay necessary rate adjustments for insurance carriers, leading to increased market concentration and a less competitive environment. The study, which covered rate filing measures across all U.S. states and the District of Columbia from 2010 to 2023, highlights concerning trends for both insurers and consumers.
Regulatory Delays Causing Market Disparities
The IRC’s study, titled “Rate Regulation in Personal Auto Insurance: Comparison of State Systems,” found that the time required for state regulators to approve rate filings has increased by 40% since 2010. This delay impacts insurers’ ability to adjust rates in response to evolving market conditions such as inflation, changes in driving behavior, and severe weather trends. As a result, the number of filings withdrawn, along with instances where approved rate changes fell short of requests, has also increased.
Dale Porfilio, President of the IRC, emphasized that these delays and disparities hinder insurers’ ability to achieve adequate pricing, ultimately pushing the market towards higher concentration and decreased competitiveness. “Ultimately, these protracted processes are causing more disparity from timely and necessary rate increases by insurance carriers to achieve adequate rate and helping push the industry toward a less competitive landscape,” Porfilio stated.
Rising Market Concentration and Underwriting Losses
The study also highlighted a worrying rise in market concentration, measured by the Herfindahl-Hirschman Index (HHI), which increased by 9% during the period examined. Despite a significant 93% increase in direct written premium from $164 billion in 2010 to $317 billion in 2023, insurance companies faced underwriting losses in 11 of the 14 years studied. This is partly attributed to growing premium shortfalls and inadequate rate adjustments.
These findings demonstrate the complex relationship between regulatory practices and market outcomes. With regulatory approval times stretching out, insurers are finding it increasingly challenging to keep pace with necessary rate changes, thereby incurring greater losses and fueling market concentration.
About the Insurance Research Council
The Insurance Research Council (IRC) is an affiliate of The Institutes, providing independent research on public policy issues impacting the insurance industry. Their studies aim to inform key stakeholders without lobbying or advocating legislative positions, contributing to a deeper understanding of insurance-related challenges across the U.S.
Conclusion
The IRC’s latest findings underscore the urgent need for more streamlined rate regulation processes to ensure a competitive and fair auto insurance market. Without timely approvals, insurers are unable to properly adjust to the rising costs and changing dynamics of the industry, which could ultimately lead to a less diverse market with fewer options for consumers.