WSJ Your Money Briefing - Why Auto Insurance Rates Aren’t Coming Down Any Time Soon

Episode Date: May 16, 2025

Auto insurance rates were supposed to be cheaper by now. But instead, Trump’s tariff plans mean these prices are staying put. Heard on the Street writer and WSJ’s Take on the Week co-host Telis Demos joins host Julia Carpenter to talk about what consumers can expect to pay going forward.  Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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Here's your money briefing for Friday, May 16th. I'm Julia Carpenter for The Wall Street Journal. By all accounts, car insurance rates should have dropped by now. But with expected tariff costs on imported cars and car parts, and uncertainty about the economy, those insurance rates are staying stubbornly steady. Auto insurers are going to not mess around. They're not going to take their chances. If they see tariffs coming through and starting to meaningfully raise the cost of car parts

and repairing cars, they're going to act pretty decisively. Wall Street Journal reporter Telus Demos will join me to talk about the connection between car insurance rates and Trump administration tariffs. That's after the break. From early morning workouts that need a boost, to late night drives that need vibes, a good playlist can help you make the most out of your everyday. And when it comes to everyday spending, you can count on the PC Insider's World Elite Mastercard to help you earn the most PC optimum points everywhere you shop. With the best playlists, you never miss a good song.

With this card, you never miss out on getting the most points on everyday purchases. The PC Insider's World Elite Mastercard, the card for living unlimited. Conditions apply to all benefits. Visit PCFinancial.ca for details. Add car insurance rates to the list of things upended by the Trump administration's tariff plans. At the start of 2025, analysts and executives had some good news for consumers. They were predicting more car insurance options and lower rates to boot, but they didn't see

tariffs coming and now rates aren't dropping like expected. Wall Street Journal reporter, Telus Deimos joins me. Telus, take me back to beginning of this year, end of last year. What first raised the prospect of lower car insurance rates? 2020 was great for car insurers because people stopped driving, and therefore stopped getting into accidents. They made a ton of money. Then you had the post pandemic inflation wave, the price of everything skyrocketed, including used car prices, car parts, all of which made it much more expensive for auto insurers to cover accident claims. And so they started

losing tons of money in order for an auto insurer to raise rates in many states, they have to basically get permission from the state to raise rates. So in 2021 2022, they started sending in all these requests for higher car insurance rates across different states. It took a year or so for those to get approved. And then another year or so for those to actually filter through 2024 was like a historically good year for auto insurers in terms of how much money they made. We were back to normal in terms of like how often people are getting into accidents,

the price of car parts, we're still rising but slower. And so car insurance companies were basically printing money from an underwriting perspective in 2024. That set them up to say, okay, well, now that we're making so much money, we can start to compete for more business. And so they wanted to lower their rates to start to compete more aggressively.

And it looked like that's what was gonna happen in 2025. What kinds of car insurance rates are we seeing right now? And how do they compare to years previous? A lot of auto insurers are still asking for higher rates. The Swiss rate Institute did a count of like how many filings there were for higher or lower rates. And the number of filings for higher rates still outnumbered the ones for lower rates. However, you did see like a pretty meaningful jump up in the number of auto insurers that

were saying to the states, yeah, I think that we can be in a position to lower rates from December to January, you saw a big jump. And some of the major national auto insurers, including like progressive, were talking about how, oh, there are some states where we think we can start to decrease rates. And so that was really the conversation heading into 2025. So I don't think that people are going to suddenly see like an enormous drop. But I saw a couple of filings where they were looking for permission to lower rates by potentially like 10, 15, 20 percent, something meaningful. And you spoke with one analyst who said that the uncertainty and the confusion around the Trump administration's tariff plans is causing some auto insurers to act with extra caution.

Can you help us understand the connection between auto tariffs and car insurance claims costs? Where does one affect the other? So auto tariffs raise the price of new cars, which mean that if an insurer has to replace your car, it's more expensive for them to do so. There are also tariffs on auto parts. Most of our auto parts come from Canada, Mexico, and China. And those countries are subject to their own special tariffs. And so tariffs, sharply increasing the price, reducing the supply of cars and car parts by all rights should increase what

it costs to repair your car. The other thing about auto insurance is that when they write a policy, they have to think about what's gonna happen in the future. Cause they're essentially saying, we're gonna cover you for the next six months or a year. And so that's why even if tariffs are still like, we're negotiating them, we don't know exactly where they're gonna land,

the insurers can't necessarily wait for that. Because if like a month from now, all the tariffs are in effect and the price of things starts really rising, then they've essentially written a bunch of policies that they can't reprice for another several months, a year. And so then they have a bad year because they didn't price that. Car shoppers have already struggled with post pandemic inflation like we were talking about. Now they're worried about tariffs shrinking inventory, raising prices.

What could these car insurance developments mean for those looking to buy a new car? For people thinking about making the transition to electric vehicles in particular, car insurance is something that will be really forefront of their minds because it's been very difficult to ensure electric vehicles. They're expensive to repair. You do see places where the insurance market shapes how people might shop for cars or think about the price of cars. And if you're really thinking about budgeting for your vehicle, thinking ahead about insurance could be a way to watch your monthlies and make sure that you're not buying something that's gonna be really difficult to insure. You ended your story

with this really decisive quote. Allstate's chief executive said if we need to raise prices we will raise prices. Do you expect other car insurers to follow suit? Auto insurers are going to not mess around. So because interest rates are higher, it has also effectively raised the cost of reinsurance, which is insurers insurance. And so a lot of the auto insurers that you and I deal with, they buy insurance from other wholesale institutional sellers

of reinsurance to insurance companies. The cost of that has gone way up over the last couple of years. And so what that means is that the auto insurers that we deal with are on the hook more for losses, especially like in catastrophe situations. So if there's a hurricane or a windstorm or something that blows away a bunch of cars,

like they've got to eat more of that than they might have in the past. And so primary auto insurers, like the all states of the world, are just really not in a position where they can be overly aggressive with their pricing. They're not going to take their chances. If they see tariffs coming through and starting to meaningfully raise the cost of car parts and repairing cars, they're going to act pretty decisively to go to the states and say,

you know what, we need more rate to cover us for this. That's WSJ reporter, Talas Demos. And that's it for your money briefing. Tomorrow we'll have our weekly markets wrap up, what's news in markets. And then we'll be back on Monday. This episode was produced by Zoe Kolkin. I'm your host, Julia Carpenter, Jessica Fenton and Michael LaValle wrote our theme music.

Our supervising producer is Melanie Roy, Aisha El-Muzlim is our development producer, Scott Salloway and Chris Sensley are our deputy editors, and Philana Patterson is the Wall Street Journal's head of news audio. Thanks for watching!