Car Insurance Costs Decline in May; What’s Ahead?

The following research was contributed to by Christine Short, VP of Research at Wall Street Horizon.

• May’s CPI report revealed a surprising decrease in the cost of car insurance
• But families across the nation continue to feel the brunt of inflation, particularly when it comes to auto-related expenses
• Car insurance providers Progressive and Allstate report interim financial updates this week and next before Q2 earnings season kicks off in mid-July

Is inflation trending lower? Yes. The Fed’s preferred inflation gauge, the PCE Price Index, has fallen to 2.7% from a peak above 7% two years ago.¹ While still higher than the FOMC’s 2% target, there’s hope that slow progress on the inflation front over the back half of this year and through 2025 will occur, allowing Chair Powell and the Fed to begin cutting interest rates before too much longer.

That’s been the zeitgeist, the proverbial carrot dangling in front of stock-market traders, for months. And that has, in part, fueled the rally in equities. It’s not so much easing monetary policy itself, but the prospect of an easing policy rate that has promoted an underlying bullish tone across sectors. Outperforming GDP growth numbers over the second half of 2023 and robust corporate earnings results so far in 2024 have been positive catalysts too.

Angst with Car Insurance

Don’t tell that to households struggling to keep pace with the cost of living, however. For those of us familiar with markets and macroeconomics, we know that prices writ large are not going to come down, but the pace of increase has dropped.

That still causes frustration at dinner tables across the country. Groceries, travel, and borrowing costs are all so much higher compared to three or four years ago. One area that has gotten a ton of attention just recently has been the massive increase in the cost of car insurance.

Used Car Prices Downshifting Lately, But Car Insurance Premiums Remain High

It was reported earlier this week that car insurance CPI fell for the first time since December 2021, though premiums are still very high compared to a few years ago. More expensive new and used vehicles versus pre-pandemic, an increase in accidents and claims, pricier repairs amid higher labor costs, and cars that are equipped with more tech gadgets are just a few of the reasons.

There is also a lag effect as insurance companies are late to hike rates on policyholders. But now with the Manheim Used Vehicle Value Index down sharply from its peak in 2022, the hope is that premium increases will level off.²

We might know more just in the next few days. After Wednesday’s CPI report, we can turn our attention from the macro data to what’s happening at the industry-specific level.

Progressive: An S&P 500 Winner, Earnings Soaring

On Friday, The Progressive Corporation (PGR) issues its May interim report. The Ohio-based Property and Casualty insurance industry company within the Financials sector could grow its annual earnings per share by more than 100% this year after a strong EPS advance in 2023. Bottom-line growth in the low-to-mid-single digits is then expected in the out year through 2026, so say analysts at BofA.³

While commuters are footing bigger bills, PGR is doing just fine. Even after rallying more than 60% in the past 12 months, the stock trades about two turns cheaper than its 5-year average forward non-GAAP price-to-earnings ratio.⁴

Friday’s report will be particularly interesting because net premiums written actually fell 20% year-on-year in April.⁵ Consumers may be responding by being more aggressive in shopping around for insurance or even cutting back on coverage. PGR’s full Q2 2024 earnings report is unconfirmed to be released on Thursday, July 11 BMO.

Will Investors Be ‘In Good Hands’ After Next Monday? 

Then on Monday, June 17 rival Allstate (ALL) issues its monthly interim report. The Illinois-headquartered P&C insurer also benefits from the industry’s cyclicality with recent above-trend earnings following massive premium increases. 

Back in April, Allstate reported operating EPS of $5.13, above the consensus forecast of $3.88 with a better-than-expected combined ratio. Its auto policy count decelerated from a 6.4% decline in Q3 2023 to a 5.2% decline in Q1 of this year. 

In its mid-May update, the company announced catastrophic losses of $494 million for April due to 11 weather-related events.⁶ It has been a volatile period for Allstate considering May’s wild weather along with volatility in the car insurance industry. Still, shares are up 50% from this time a year ago. Looking ahead, ALL’s confirmed Q2 2024 earnings date is Wednesday, July 31 AMC. 

PGR & ALL Sharply Outperforming the S&P 500 in the Past Year, Momentum Easing

Other Volatility Catalysts

As for other industry players, Travelers (TRV) reports earnings on Thursday, July 18 BMO, and Chubb (CB), a recent purchase by Berkshire Hathaway (BRKA), issues Q2 results on Tuesday, July 23 BMO. Both of those are unconfirmed reporting dates.

Key Insurance-Industry Events on Tap

The Bottom Line

It’s not just market nerds and professional analysts who understand big trends in insurance markets. Families feel the financial pain. Home and car insurance policy premiums have soared by about 25% since 2019, contributing a significant portion to the rise in CPI this cycle. BofA reports that motor vehicle insurance alone has accounted for nearly half of the 4.9% annual jump in CPI core services ex-rent and OER (as of April 2024). Following the encouraging May CPI report, we’ll get the latest updates at the firm-specific level this Friday and Monday next week.

Sources:

1 United States PCE Price Index Annual Change, Trading Economics, June 12, 2024, https://tradingeconomics.com
2 Used Vehicle Value Index, Manheim, June 7, 2024, https://site.manheim.com
3 Diagnosing the variance with our Street-high forecasts with consensus estimates, BofA, June 11, 2024, https://rsch.baml.com
4 PGR, Seeking Alpha, June 12, 2024, https://seekingalpha.com
5 PROGRESSIVE REPORTS APRIL RESULTS, Progressive Corporation, May 15, 2024, https://ml.globenewswire.com
6 Allstate Announces April 2024 Catastrophe Losses, The Allstate Corporation, May 16, 2024, https://www.allstatenewsroom.com​

Wall Street Horizon provides institutional traders and investors with the most accurate and comprehensive forward-looking event data. Covering 9,000 companies worldwide, we offer more than 40 corporate event types via a range of delivery options from machine-readable files to API solutions to streaming feeds. By keeping clients apprised of critical market-moving events and event revisions, our data empowers financial professionals to take advantage of or avoid the ensuing volatility.

Christine Short, VP of Research at Wall Street Horizon, is focused on publishing research on Wall Street Horizon event data covering 9,000 global equities in the marketplace. Over the past 15 years in the financial data industry, her research has been widely featured in financial news outlets including regular appearances on networks such as CNBC and Fox to talk corporate earnings and the economy.

Twitter: @ChristineLShort

The author may hold positions in mentioned securities.  Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.