The pain for home- and auto-insurance customers is quickly becoming investors’ gain. Insurance giants’ shares and profits are hitting records, thanks in part to steep rate hikes.
Shares of Travelers, a bellwether for the property and casualty sector, closed at an all-time high earlier this week, up 35% from their lows last fall. The jump came after the company reported a record profit for its fourth quarter, boosted by double-digit rate increases in its business and personal insurance units.
Progressive said Wednesday that its quarterly profit more than doubled from a year earlier. Its stock rose, pushing the company’s market capitalization past $100 billion for the first time. Shares of Allstate, which reports results next month, also reached new heights this week, up more than 50% from their lows last summer.
After suffering some of the worst years in their history, insurers say they now see a path to profitability for home and auto policies. Big rate increases are driving up revenue, while the inflationary pressures that pushed up repair and replacement costs appear to be easing. Losses from extreme weather tied to climate change remain a wild card, but the short-term outlook for insurers appears more favorable.
“We’ve started seeing the potential for light at the end of the tunnel,” said Josh Esterov, an insurance analyst at CreditSights.
The industry’s stock-market sizzle contrasts with the experience of millions of homeowners and drivers. Policyholders are facing sharply higher prices, reduced coverage, and fewer, if any, choices for coverage. Companies are pulling back from disaster-prone areas across the country, leaving California wrestling with what regulators called an “insurance emergency” last month.
“Insurers kicked their rate hikes into high gear in 2023, which has been thrilling to investors,” said Douglas Heller, director of insurance at the Consumer Federation of America. “But for everyone who has to buy coverage, it has been very difficult.”
Despite their rosier finances, insurance companies are still pushing for price increases. Home insurers in North Carolina this month asked regulators to greenlight a 42% increase in premiums, including a near doubling in rates for flood-prone coastal counties. That would take a typical homeowner’s annual premium on the coast to $6,833 from $3,427, according to the industry’s filing.
Nationally, rates are set to keep climbing. Travelers executives this week said the insurer’s premiums are likely to increase in “low double digits” percentages for home-insurance renewals this year, and in the midteens for drivers renewing policies through June.
The industrywide push to raise prices follows a long run of underwriting losses after the pandemic. Applications to states for rate increases can take months—or even years—to be approved, so premiums have tended to lag behind the rising costs of claims, according to analysts.
“In hindsight, customers got a great deal” for most of the period after the Covid lockdown ended, said Paul Newsome, an insurance analyst at Piper Sandler. “Home and auto insurance was typically underpriced, with companies paying out a lot more than they took in.”
Consumer advocates say the industry’s rate requests can be a one-way street: policyholders are punished when insurers incur losses, but get little relief when they swing back to profitability.
During the pandemic, for instance, auto insurers raked in outsize profits as people stayed at home and got in fewer car crashes. Only one of the top 10 auto insurers, State Farm, cut rates by more than 10% in the two years through 2021, according to S&P Global Market Intelligence.
Since then, the 10 companies—Allstate, American Family Insurance, Farmers Insurance, Geico, Liberty Mutual, Nationwide, Progressive, State Farm, Travelers and USAA—have each won regulatory approval to boost auto-insurance rates by more than 20%, according to an S&P report this month. In 16 states, the two-year increase topped 30%, including jumps of 45.5% in Texas and 39% in Ohio
S&P analyst Tim Zawacki said many of the top 10 offered one-off pandemic rebates, credits or dividends to policyholders, even if they didn’t cut rates. The industry’s lockdown gain on auto, an $18.9 billion net profit in 2020, has been more than wiped out by losses since commuters returned to the road, he said.
In many states, regulators police rates to ensure that they are fair to policyholders but high enough for insurers to stay in the state. That balancing act is getting harder in disaster-prone areas.
Hartford Financial Services Group this week said it would no longer sell new home-insurance policies in California starting next month, the latest player to pull back in the state. Hartford’s shares have been enjoying a strong run, closing Wednesday at $86.42, their highest level in more than 15 years. A spokeswoman for Hartford said the California pullback was a response to the “unique challenges” posed by the state.
One factor in the run-up in insurance stocks: the recent willingness of regulators to allow large rate increases, even in states traditionally seen as tough on the industry. Last month, Allstate won approval for auto-insurance rate increases of 30% in California, 17% in New Jersey and 15% in New York. The company had threatened to stop renewing policies in those states after suffering losses.
“Wall Street assumes that insurers will continue to face little regulatory resistance to rate hikes,” said Heller of the Consumer Federation of America.
Analysts warn that the industry’s outperformance might not last.
S&P’s Zawacki said insurers are coming out of their most difficult period in generations. “Companies are not going to be quick to declare victory,” he said.