The US auto insurance sector has staged a dramatic and forceful recovery, with financial results for the period ending September 30, 2025, revealing a swing to record-level profitability driven by the full impact of two years of aggressive premium hikes, according to J.D. Power’s 2025 U.S. Auto Insurance study.
After a brutal period of post-pandemic losses, the industry’s largest carriers have turned the corner. Some insurers reported third-quarter results that vastly outpaced prior-year performance, reflecting a new equilibrium where premium increases have finally overtaken moderating, albeit still-high, loss cost inflation.
Allstate’s performance improvement was particularly dramatic. Their combined ratio (the percent of premiums spent on claims) improved to 82.0, a striking 12.8-point improvement from the same period in 2024. This helped its net income surge to $3.7 billion for the quarter, up from $1.2 billion a year prior.
Drivers of the Improvement
The double-digit rate increases that frustrated drivers throughout 2023 and 2024 are now fully “earned” on insurers’ books, providing a massive top-line revenue boost. Allstate, for example, cited higher average earned premiums as the chief driver of its 12.8-point auto combined ratio improvement.
Simultaneously, while the costs of vehicle repairs, parts, and medical care remain higher than they were prior to the pandemic, the costs increased less rapidly in 2025 than they did in 2024. This slowdown has allowed insurers to slow down premium increases while maintaining or increasing profitability.
Furthermore, carriers benefited from lower levels of correlated risk. This type of risk poses issues for insurers because it cannot be diversified away. Several major insurers noted that catastrophe losses were significantly lower in the third quarter of 2025 compared to the same, heavily impacted period in 2024. The higher rate of natural disasters in 2024 was particularly problematic for insurers.
Increased Profitability Driving Increased Competition
After years of fighting for their lives against rising costs, the industry has finally found its footing. With this battle won, the industry’s focus is pivoting back to the more traditional front of winning over customers.
According to J.D. Power’s 2025 U.S. Auto Insurance study, 38% of customers are dissatisfied with their car insurance, a number that has grown over years of large premium increases. The high proportion of profitable customers who are unsatisfied with their current carriers has encouraged some carriers to invest heavily in customer acquisition. Unlike Allstate, Progressive and GEICO reported a deterioration in their third-quarter combined ratios, not from vehicle losses, but from a surge in marketing expenses.
The change from a market with unprofitable customers to profitable customers has been a significant one. For the past 24 months, carriers were content to shed unprofitable policies and focus primarily on margin. Now, they are willing to sacrifice some of that hard-won margin to win customers. The new advertising arms race signals increased competition which could be a major headwind to profitability in 2026.
Looking to the Future
While the sector is projected to maintain underwriting profitability, forecasts from S&P Global Ratings predict that margins will narrow due to competition for customers.
After a period of high volatility, the car insurance industry has found its footing and is enjoying a period of financial strength. This is in stark contrast to property and health insurance which have faced much greater cost increases. In the future, we may expect more dynamism in this sector as low combined ratios draw competition and encourage innovation.
