3 Things 12-22-25

 Thing One

How Lower Reinsurance Prices Could Put Money Back in Drivers’ Pockets

After several years of rising premiums, the auto insurance market may be approaching a turning point. One of the most important forces behind the recent wave of rate increases — reinsurance costs — is beginning to ease, and that shift could set off a new phase of competition among car insurers, including selective rate reductions aimed at gaining market share.

Reinsurance is essentially insurance for insurance companies. When reinsurers raise prices, primary carriers see their cost structures increase and often pass those costs along to consumers. That dynamic played out over the past few years as inflation, severe weather, and higher claims volatility pushed reinsurance markets into a hard pricing cycle. Auto insurers responded by raising premiums aggressively, often with regulatory approval, to protect margins.

That pressure is now starting to fade. Reinsurance capacity has improved, loss trends have stabilized in some segments, and pricing power has shifted modestly back toward buyers. As reinsurance rates drop, insurers’ balance sheets improve and capital requirements loosen. While not every line of insurance responds the same way or on the same timeline, the economics of auto insurance are clearly becoming less strained than they were even a year ago.

When costs come down, insurers face a strategic choice. They can allow margins to expand, or they can deploy lower pricing as a competitive weapon. In highly competitive markets like personal auto insurance, history suggests many carriers will choose the latter. Cutting rates — even modestly — can attract better risks, improve retention, and rebuild market share that was lost during the recent period of aggressive price hikes.

This dynamic is especially likely among insurers that pulled back from growth over the past two years. With underwriting results improving and reinsurance becoming more affordable, those companies may see an opportunity to re-enter markets with more attractive pricing. Rate filings take time, and regulatory approval varies by state, but the incentives are lining up for competition to re-emerge through price rather than restraint.

That doesn’t mean premiums will suddenly fall across the board. Auto insurance is still influenced by repair costs, medical expenses, litigation trends, and state-specific regulations. However, as reinsurance costs continue to ease and carriers grow more confident in loss projections, pricing pressure should shift from upward defense to downward offense.

For consumers, this shifting environment makes now a smart time to be proactive. When insurers begin competing on price, the best rates often go to new or actively engaged customers — not necessarily to those who simply renew year after year. Comparing quotes from multiple companies can reveal whether your rate still reflects current market conditions or if you’re paying a premium based on older pricing assumptions. Asking your current insurer about newly available discounts, updated underwriting criteria, or changes to pricing can sometimes trigger a review that leads to savings without switching companies. Even small adjustments — like accounting for a cleaner driving record, reduced mileage, or improved credit — can make a noticeable difference.

As insurers begin to sharpen their pricing to win market share, informed consumers stand to benefit the most. Reviewing coverage, shopping competitively, and asking the right questions ensures your policy reflects today’s market — not yesterday’s costs — and positions you to take advantage of any rate relief as it emerges.

Thing Two  

Follow-up to the Nike Comments

We wanted to make to a couple clarifying points on the Nike topic from last week. 

First, we didn’t mean to suggest that buying expensive shoes is a waste of money.  We fully acknowledge that we all need shoes and that it’s okay to spend $240 (or even more than that) to purchase a pair.  By sharing the projected earnings from investing the same amount, we were only trying to show that there is an opportunity cost - a rather substantial one - associated with not investing the money.   In other words, by purchasing a pair of $240 shoes instead of making a $240 investment with the return characteristics we described, the shoe purchaser could be unwittingly “costing” himself $33,000 in the long run.

Second, we picked shoes in our original illustration but there is actually an infinite list of items from which to choose.  Sticking with the $240 threshold, a person could easily spend that much eating out for lunch in a month.  He could also spend that amount in a coffee shop in a couple of months.  And he could spend it in a few minutes during an online shopping spree on any number of items.  The point, again, is not that people are wasting money buying these things but rather that there is an opportunity cost and it’s at least worth considering from time to time given the potential payoff.