Rising costs: Car insurance is likely to become more expensive again

Motorists must expect further price increases for their car insurance. After the massive price increases of the past two years, further adjustments cannot be ruled out, according to reinsurer Hannover Re, which counts many German car insurers among its customers through its subsidiary E+S Rück. "However, the adjustments are likely to be less drastic than in 2023 and 2024," said E+S CEO Thorsten Steinmann at the World Reinsurance Meeting in Monte Carlo following discussions with car insurers.

Providers are struggling with rising prices for spare parts and workshops, which are making car repairs significantly more expensive. As a result, they have significantly increased the cost of insurance coverage. According to the comparison portal Verivox, car insurance prices have risen by 43 percent from autumn 2022 to the end of last year. The upward trend is continuing this year.

After billions in losses in the previous two years, car insurers are expected to make a small profit again in 2025. However, the forecast is still subject to uncertainty. "The hail season has been very favorable so far, but it's not over yet," Steinmann noted. Hailstorms regularly cause significant damage to cars and are often very expensive for insurers.

Steinmann views the recent price increases by car insurers as positive, but also urgently necessary. "Car insurers are back on track," he praised. However, further challenges await them: In motor liability insurance, rising treatment and care costs for accident victims are a major issue that will continue to occupy insurers in the future, according to Steinmann.

In general, the picture among motor insurers is very heterogeneous, he explained. Some motor insurers are significantly further along their path to profitability than others, some of which still have loss-making loss and expense ratios exceeding 100 percent. This means they spend more on claims, administrative expenses, and distribution costs than they receive in premiums from their customers.

At the so-called "Rendez-Vous de Septembre" in the Principality of Monaco on the Côte d'Azur, reinsurers such as Munich Re and Swiss Re meet with their clients from all over the world – insurers such as Allianz and Ergo – to negotiate contracts for the coming year. With reinsurance, insurers protect themselves against major losses caused by natural disasters, for example. The city-state, which most people associate with wealth, tax evasion, gambling, and auto racing, seems an odd choice as the venue for such a large conference, which now attracts around 3,000 participants, but it has a long tradition. The meetings have been held here since 1957.

This year, insurers are in a better negotiating position than at previous meetings. After reinsurers raised prices for catastrophe coverage by around 30 percent at the beginning of 2023 due to poor operating results, high catastrophe losses, interest rate changes, and inflation, they are now making good profits again. The companies are now once again competing more intensely for their customers, the insurers. They are also facing competition from non-industry investors such as pension funds, which offer alternatives to reinsurance coverage through so-called insurance securitizations.

This puts pressure on prices – much to the delight of insurers. "Prices will continue to decline in 2026, especially for short-term contracts such as fire insurance," said Johannes Bender of the rating agency S&P. He expects an average decline of 5 percent.

What's not pleasing to insurers: Reinsurers are unwilling to deviate from the strict contractual terms and conditions they also introduced at the beginning of 2023. They have largely withdrawn from coverage for smaller, more frequently occurring losses such as storms and floods, for example, by increasing deductibles. This, in turn, forces insurers to raise prices for their customers, both private individuals and companies, to compensate for the high claims burden, which they now largely have to bear on their own.

Broker Guy Carpenter is already warning that reinsurers are gradually losing relevance to their clients. "Higher retentions—meaning reinsurers assume a smaller share of smaller losses—have helped improve profitability, but pose a challenge to relevance unless a more balanced risk sharing with clients is achieved."