After spending the past couple of years raising rates to catch up with soaring claim costs, auto insurers may be facing another test.
The Consumer Price Index rose 4.2% in May from a year earlier, marking the highest inflation reading in three years.
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Although much of the increase was driven by energy prices, several categories that directly affect auto insurers remain elevated, including vehicle repair costs, maintenance expenses, and used car prices. Vehicle maintenance and repair costs rose 6.1% year over year in May, while used vehicle prices ticked higher after months of declines.
For Progressive (NYSE: PGR) and Allstate (NYSE: ALL), this is relevant.
Battling inflation
Auto insurers don’t just sell policies. They assume the cost of repairing or replacing damaged vehicles. And when parts, labor, and used car prices rise, claims become more expensive.
That’s exactly what happened during the inflation surge of 2021 through 2023.
Repair shops faced labor shortages. Replacement parts became harder to obtain. Used vehicle prices soared. Insurers aggressively raised premiums to restore profitability. And for a while, those efforts worked.
Progressive reported a companywide combined ratio of 86.4% during the first quarter of 2026 and 90.2% in April. Any combined ratio below 100% indicates an insurer is generating an underwriting profit before investment income. Policies in force also increased 8% year over year to nearly 39.8 million at the end of April.
Allstate has also seen a dramatic turnaround. During the first quarter of 2026, the company reported an underlying auto insurance combined ratio of 89.5% and a recorded auto combined ratio of 81.9%. Auto policies in force increased 4.3% from the prior year as profitability improved after several years of significant rate increases.
Those numbers suggest both insurers successfully adjusted their pricing to reflect the new reality of higher claim costs.
The question now is whether they will need to do it again.
If repair costs continue to rise and used vehicle prices resume their upward climb, insurers could see claims costs accelerate faster than expected. That’s worth keeping an eye on, as a lot of companies have already begun slowing the pace of rate increases after restoring profitability.
Adapting to change
The insurers that perform best during the next several years likely won’t be the ones adding the most policies. They will be the ones that respond fastest to changing claim trends.
