The price of gas continues to increase in the wake of the ongoing turmoil in Iran. As a result, consumer budgets and wallets have been affected at the pump with average increases of about 20 cents a gallon for each of the last three weeks. Looking ahead, if higher prices are sustained throughout the coming months, expect an alteration in personal driving habits to lower total miles driven.
Historically, a couple months after a sustained increase in the price of gas, driving habits begin to change. Changes may include shared rides, fewer trips to the store, or an increase in days worked from home. Taken together, that will likely lower the total miles driven this summer below what the total would have been if gas prices had remained stable.
For insurance companies, if fewer miles are driven this summer as a result of sustained higher gas prices, fewer accidents can be expected. That would translate into lower claims costs, a favorable impact on the benefit ratio, increased profitability, and a boost to earnings.
FactSet data and functionality indicate that both Allstate (ALL) and Progressive (PGR) are well positioned to benefit from an expected changes in driving habits if higher gas prices are sustained throughout the summer.
Gas prices most recently increased in 2022 following an increase in demand as the country emerged from COVID and from uncertainty that spiked when Russia invaded Ukraine. The chart below (left) shows a five-year history with the 2022 spike in price and the most recent upturn (red circle). The other chart below (right) shows the most recent year to highlight the price increases over the last few weeks.
The drop in miles driven (blue line) given a sustainable increase in the price of gas (red line) can be seen in summer of 2024 in the following graph, which incorporates a two-month lag into miles driven data. The increase in miles in 2025 also correlates to the drop in the price of gas.
Looking ahead to 2026, following the seasonal drop in miles after summer 2025 two questions need to be answered to anticipate any potential impact on benefit ratios:
Will the recent increase in the price of gas be sustained?
Will a sustained increase in the price of gas be enough to significantly reduce total miles driven during the summer?
Progressive and Allstate both earn a significant percentage of premiums from personal auto insurance highlighted by the red box. The data below has been aggregated from subsidiary State/Line - Exhibit of Premiums / Losses statutory schedules and aggregated at a group level. Private passenger premiums are 95% of Progressive’s personal line premiums and 70% of Allstate’s personal line premiums. Personal lines are 86% and 93% of total premiums for Progressive and Allstate, respectively.
Given the heavy weighting of personal auto business to total premiums for both Progressive and Allstate, an improvement in the benefit ratio for the personal auto line of business would translate into higher earnings for both companies. Currently, both companies have a single analyst with an elevated estimate for the 3Q26 benefit ratio relative to other analysts.
As the summer progresses, if total miles driven are reduced by sustained, higher gas prices it is likely that claim costs will be lower than if gas prices remained stable and total miles driven were higher. Lower reported claims over the summer, as a result of fewer miles driven, may be the catalyst needed to revisit estimates that lower benefit ratios and increase earnings.
This week we will comment on two sources of inflation. One source of inflation, discussed in a prior report, was the rise in the cost of imported car parts, which was attributed to an increase in tariffs. The increase in tariffs was a source of inflation that drove up settlement costs and hurt insurance earnings. This week we make a case that another source of inflation, higher gas prices, may decrease total miles driven, lower claims costs, and help insurance earnings.
The outlook for a pick-up in inflation should become widespread if the source is a persistent rise in gas prices. While we make a case that this most recent source of inflation may lower claims costs, benefit ratios, and boost insurance earnings, it could also slow the U.S. and global economies. There are business lines across the insurance industry that would be hurt by a slowdown in the U.S. and global economy and would more than offset any pick-up in earnings from reduced claims in the personal auto business.
Our Macro Tracker table lists key economic data relevant to insurance company earnings. The right-hand column ties macro trends to the potential impact on company earnings.
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