US auto insurers posted their strongest underwriting results in 15 years during 2025, with a personal auto combined ratio of 92.7. But analysts at S&P Global, AM Best, and Fitch Ratings warn that tariffs on imported auto parts, intensifying price competition, and rising litigation costs could push the industry back toward breakeven by 2028. For consumers, the current rate-cutting window is real but likely temporary.
- Personal auto combined ratio hit 92.7 in 2025, the best result in at least 15 years
- Average full-coverage premiums fell 6% in 2025 to $2,144/year, with only a 1% increase projected for 2026
- 25% tariffs on imported vehicles and auto parts could add 3 percentage points to rate increases
- S&P Global projects the auto combined ratio will breach 100 (losses) again by 2028-2029
- Consumers have a 6-12 month window to lock in competitive rates before potential reversals
Auto Insurers Post Best Results in 15 Years
The US personal auto insurance market just had its best year since the pandemic-era driving lull of 2020, and arguably its strongest sustained performance since 2006-2007. S&P Global Market Intelligence projects the 2025 personal auto combined ratio at 92.7, rivaling 2020's 92.5 for the best in at least 30 years, according to an Insurance Journal analysis published in March 2026.
A combined ratio below 100 means insurers are making money on underwriting alone, before investment income. At 92.7, insurers kept roughly 7 cents in underwriting profit for every premium dollar collected.
The recovery has been dramatic. After posting billions in underwriting losses during 2022 and 2023, when repair costs, medical inflation, and claims frequency surged simultaneously, carriers responded with aggressive rate increases totaling 46% between 2022 and 2024, according to Insurify data. Those increases, combined with lower claims frequency and a relatively mild 2025 catastrophe season, restored profitability across the board.
AM Best reported the overall P/C industry combined ratio improved to 95.0 in 2025, down from 98.0 in 2024, marking the first sub-100 result in three years. Net premiums written grew 6.1% for the year, though that pace already decelerated from 8.7% growth in 2024.
For consumers, the payoff has been real. The national average full-coverage premium dropped 6% to $2,144 annually in 2025, with 39 states seeing rate reductions, according to Insurify. Eight states experienced cuts of 15% or more. Florida's top five insurers cut rates by an average of 8%, and carriers like State Farm returned $5 billion in dividends to policyholders.
Three Risks Threatening the Recovery
Despite the strong numbers, the industry's own analysts are sounding alarms. S&P Global's December 2025 assessment was blunt: the current profitability is "anticipated to be temporary due to various market dynamics and challenges."
Risk 1: Tariffs on Auto Parts and Vehicles
The 25% tariff on imported vehicles took effect in April 2025, with the same rate applied to imported auto parts starting May 2025. A separate 10% universal tariff applies to most other imported goods. Since roughly 60% of replacement parts used in US auto repairs come from tariff-affected countries, the cost impact on collision and comprehensive claims is substantial.
Insurify identified tariffs as a "wildcard" factor that could push the projected 1% national rate increase in 2026 up to 4% or higher. Replacement part costs for vehicles relying heavily on imports are expected to rise 15-25%, according to industry estimates. That translates to roughly $50-$125 more per year on a typical full-coverage policy. We covered the mechanism in detail in our analysis of how tariffs affect car insurance rates.
Dr. Michel Leonard, Triple-I's chief economist, noted that while insurers avoided worst-case scenarios in 2025, the full tariff impact requires more time to unfold. Supply stockpiles built ahead of the tariffs are depleting, which means rising costs for both repairs and new vehicle purchases heading into late 2026.
Risk 2: Market Softening and Price Competition
After years of raising rates, carriers are now competing aggressively for customers. Personal auto insurers more than doubled their advertising expenditure to $8.1 billion in 2024, according to S&P Global data. Rate cuts are spreading across states and carriers as each company tries to grow market share during the profitable cycle.
This is a textbook market softening pattern. When insurers are profitable, they cut prices to attract customers. When enough carriers do it simultaneously, margins compress. Fitch Ratings expects the US P/C market to "continue softening" in 2026 with increased competition and downward pricing pressure.
The risk for consumers is counterintuitive: the aggressive rate competition that's saving you money today is also eroding the profit cushion that makes those savings possible. If margins get too thin and a spike in claims hits, carriers will raise rates again quickly.
Risk 3: Social Inflation and Rising Litigation Costs
Social inflation, the industry term for escalating claims costs driven by larger jury verdicts and more aggressive litigation, has long plagued commercial auto insurance. Now it's bleeding into personal auto, particularly among at-fault drivers with higher liability limits under personal umbrella policies, according to the S&P Global analysis.
Commercial auto combined ratios remain above 100 (104.3 projected for 2025), meaning that segment is still losing money on underwriting. AM Best flagged three commercial lines that exceeded 100 combined ratios in 2025: auto (103.5), medical professional liability (106), and other/products liability (108).
The concern is that the litigation trends driving commercial auto losses will increasingly affect personal auto claims, especially as average vehicle values rise and injury settlements grow larger.
What the Numbers Say About the Next Three Years
| Year | Personal Auto Combined Ratio | Change from Prior Year | All-Lines P/C Combined Ratio | Outlook |
|---|---|---|---|---|
| 2024 (Actual) | 97.1 | Improved | 98.0 | Recovery underway |
| 2025 (Projected) | 92.7 | -4.4 pts | 95.0 | Best in 15+ years |
| 2026 (Forecast) | 97.1 | +4.4 pts | 96.9 | Margins narrowing |
| 2027 (Forecast) | 98.9 | +1.8 pts | N/A | Near breakeven |
| 2028-2029 (Forecast) | 100+ | Breach breakeven | N/A | Underwriting losses return |
Source: S&P Global Market Intelligence, December 2025 projections. Combined ratio below 100 indicates underwriting profitability. All-lines figures from AM Best, March 2026. Forecasts assume no major catastrophe events or regulatory changes.
The trajectory is clear: 2025 was the peak. S&P Global projects the personal auto combined ratio will jump back to 97.1 in 2026, matching 2024 levels, then edge to 98.9 in 2027 before breaching 100 again in 2028 or 2029. AM Best's all-lines forecast of 96.9 for 2026 represents a 1.9-point deterioration from 2025.
Fitch Ratings expects underwriting profits to "narrow modestly in 2026 with a combined ratio between 96 and 97" for commercial lines, while personal auto returns to earth after its exceptional 2025.
What This Means for Your Premiums
The industry data paints a specific picture of the consumer landscape over the next 12-18 months.
Right now through mid-2026: Rates remain favorable. Insurify projects only a 1% average increase nationally in 2026, to $2,158 per year for full coverage. Thirty-five states are expected to see increases, while 15 states will see continued decreases. This is still one of the most competitive shopping environments in years, with carriers actively trying to win customers.
Late 2026 into 2027: Tariff-driven repair cost increases start showing up in premiums. The insurance industry typically takes 12-18 months to adjust to new cost structures. Parts tariffs that took effect in May 2025 will be fully reflected in claim costs by late 2026, and carriers will begin adjusting rates accordingly.
2027-2028: If S&P Global's projections hold, the market softening and rising costs push the combined ratio back toward breakeven. At that point, carriers will shift from cutting rates to raising them. Drivers who locked in favorable rates or switched carriers during the 2025-2026 window will benefit; those who waited may face steeper increases.
For context, current rates vary dramatically by state, from Idaho's $1,443 average to Washington D.C.'s $4,017. A 4% tariff-driven increase on a $4,000 policy means $160 more per year, while the same percentage on a $1,443 policy adds only about $58.
Industry analysts broadly agree: the current competitive rate environment is a product of exceptional 2025 profitability that is unlikely to repeat. Consumers who shop for better rates now, while carriers are actively competing for business, stand to benefit the most. Waiting until 2027 or 2028 could mean shopping during a hardening market with fewer discounts available.
What You Should Do Now
Get Competing Quotes This Quarter
Carriers are still cutting rates and competing hard for new customers. Record numbers of drivers shopped for new coverage in 2025, and savings of $600-$1,200 per year from switching are common in this market. Get at least three quotes before your next renewal.
Review Your Coverage Limits
With vehicle values rising (the average new car now exceeds $50,000), make sure your collision and comprehensive coverage reflects current replacement costs. Also check that your liability limits are adequate, since rising medical costs and litigation trends mean state minimums may leave you exposed.
Ask About Telematics and Bundling Discounts
In a competitive market, carriers offer more aggressive discounts to attract customers. Usage-based insurance programs, bundling with homeowners or renters policies, and loyalty incentives can shave 10-25% off your premium. If you haven't explored these in the past year, now is the time.
Factor in Tariff Exposure
If you drive an import-heavy vehicle (many popular models from Honda, Toyota, Hyundai, and Kia rely on imported parts), your repair costs are more exposed to tariff increases. Consider higher deductibles on collision coverage if you can absorb the out-of-pocket cost, which directly lowers your premium.
The Bigger Picture: Insurance Industry Cycles
What's happening in auto insurance follows a well-documented pattern called the underwriting cycle. It works like this: carriers raise rates aggressively after a period of losses (2022-2024), profitability returns (2025), competition intensifies as carriers chase market share (2025-2026), margins compress (2026-2027), and eventually external shocks or accumulated losses force another round of increases (2028+).
The current cycle is notable for how fast it moved. The 46% rate increase over 2022-2024 was among the steepest in modern history, driven by a perfect storm of post-pandemic driving surges, supply chain shortages, and medical cost inflation. The recovery was equally swift, with the combined ratio improving more than 5 points in a single year.
Auto insurance now represents 41.1% of total US P/C direct premiums written, according to S&P Global. That concentration means auto market dynamics have an outsized impact on the entire insurance industry's financial health.
S&P Global's December 2025 assessment: current profitability is "anticipated to be temporary due to various market dynamics and challenges." The favorable conditions driving 2025 results are "unlikely to recur."
Looking Ahead: What to Watch
Several developments in the coming months will signal whether the profitability window is closing faster than expected.
Q2-Q3 2026 earnings reports will show whether tariff-driven repair costs are hitting claim expenses. If collision and comprehensive loss ratios tick up meaningfully, rate increases will follow within two to three quarters.
Carrier rate filings in state insurance departments will reveal whether the current wave of decreases is slowing or reversing. Florida, Texas, and California filings are bellwethers for national trends.
Consumer confidence and driving patterns matter too. Consumer confidence hit a 12-year low in March 2026, according to Triple-I analysis. If economic weakness reduces driving miles, it could offset some of the cost pressures and extend the favorable cycle.
Hurricane season (June-November 2026) could reshape the entire P/C outlook. The benign 2025 catastrophe season was a major factor in the industry's strong results. A single major hurricane season could absorb the entire industry profit cushion built up over the past year.
Frequently Asked Questions
Nationally, rates are roughly flat. Insurify projects a 1% average increase to $2,158 per year for full coverage in 2026, following a 6% decrease in 2025. However, 35 states are expected to see modest increases while 15 states will see continued decreases. The key variable is tariffs: if repair cost increases accelerate, that 1% projection could climb to 4% or higher in the second half of 2026.
Insurance markets follow an underwriting cycle. When carriers are highly profitable (as they are now with a 92.7 combined ratio), they compete for customers by cutting prices. Each carrier individually benefits from gaining market share, but collectively the competition erodes industry margins. This pattern repeats roughly every 5-7 years in the P/C insurance industry.
The impact depends on your vehicle. Cars with a high percentage of imported parts (many Honda, Toyota, Hyundai, and Kia models) face steeper repair cost increases of 15-25% on affected components. This flows through to higher collision and comprehensive claims costs for insurers, which eventually gets passed to consumers through premium adjustments. The insurance industry typically takes 12-18 months to fully reflect new cost structures in rates.
This is one of the best times in recent years to shop around. Carriers are actively competing for customers, offering lower rates and better discounts. The average driver who switched in 2025 saved $600-$1,200 per year, according to industry data. Getting quotes from at least three carriers before your next renewal can help you lock in favorable pricing before the market potentially tightens in 2027-2028.
A combined ratio measures how much an insurer pays out in claims and expenses for every dollar of premium collected. Below 100 means the insurer is profitable on underwriting; above 100 means losses. When the ratio is very low (like 92.7 in 2025), insurers have room to cut rates and compete for customers. When it rises toward or above 100, they raise rates to restore profitability. Tracking the combined ratio tells you which direction rates are heading.
- Insurance Journal - Good Times for US P/C Insurers May Not Last; Auto Challenges Ahead (March 2026)
- Carrier Management - Good Times for U.S. P/C Insurers May Not Last; Auto Challenges Ahead
- Insurance Journal / AM Best - Premium Slowdown, Inflation Factors to Lead to Higher P/C Combined Ratio (February 2026)
- Insurance Journal / Insurify - After Falling 6% in 2025, Average Auto Insurance Cost Will Stabilize in 2026
- Triple-I Blog - Tariffs, Shutdown Cloud 2026 Insurance Outlook
- Risk & Insurance - U.S. P&C Insurance Outlook: Cautious Optimism for 2025-2026 Amid Tariff Threats
- State Farm Newsroom - State Farm Reports 2025 Financial Results