The US’s largest car insurer, State Farm Mutual Automobile Insurance Co., reported a $13.4 billion (!) underwriting loss last year, the largest shortfall in its 100-year history; Allstate Corp.’s auto-insurance underwriting loss was $3 billion, while Berkshire Hathaway Inc.’s Geico car-insurance unit lost $1.9 billion.

In the UK, Direct Line Insurance Group Plc’s chief executive departed in January after mounting losses at the motor division forced it to scrap its dividend. The stock has declined more than 50% in the past year.

These woeful results have shaken confidence in the industry’s purported ability to assess risk and forecast accurately. Insurers are belatedly hiking premiums, though often not as quickly as they’d like. Customers who drive Range Rovers and other vehicles prized by thieves, may struggle to get coverage at all.

Soaring used-car prices are the proximate cause of insurers’ woes – a textbook example of how supply chain upheaval can cascade through the economy. Historically, vehicles were a depreciating asset, but suddenly the cost of replacing a stolen or damaged vehicle was far more than insurers had calculated.

Eoin Treacy's view

The insurance sector is not in the habit of sustaining losses on underwriting so premiums are most assuredly going up. That’s true of every area of the insurance business and not only automotive rates. Everything from commercial, to health to cyber rates are rising.

This news struck me as interesting because it follows hot on the heels of Piguet Ademar’s issuing a replacement guarantee on any high end watches bought over the last couple of years. The threat of theft has growth so high it is impacting sales of their timepieces.

There are likely to be street protests in New York following former President Trump handing himself over to authorities and McDonalds has closed down is headquarters in advance of layoff announcements. It’s worth considering this is happening before a recession.  


What brought these considerations home to me is the above graphic. Global sales of automotives have fallen by 13.5 million a year since 2017 and EVs now represent about 14% of the total. Over the same time the average cost of a car has jumped 60%.

The introduction of ride hailing, EVs, lower sales values and higher insurance premiums all represent higher barriers to vehicle ownership. That’s a challenge to auto margins but it is also representative of lower standards of living. Public revolt against that is one of the most compelling base cases for thinking a wage price spiral is possible. That’s why I do not expect bond yields to retest the 2020 lows.