Personal auto insurance is still more affordable than it was in the mid-2000s, despite some recent increases in premiums due to inflation. This is according to a new study from the Insurance Research Council (IRC), which is part of The Institutes.
The study, titled "Auto Insurance Affordability: Countrywide Trends and State Comparisons," shows that from 2000 to 2022, the cost of auto insurance as a percentage of median household income has generally declined, suggesting that auto insurance has become more affordable over time. However, the situation has changed recently. From 2021 to 2024, affordability is expected to worsen.
In 2022, the average American household spent about $1,127 per vehicle on auto insurance, which is 1.51% of the median household income of $74,580. This is a small increase from the previous year. There are significant differences from state to state; for instance, North Dakota had the lowest expenditure at 0.93%, while Louisiana had the highest at 2.67%.
Dale Porfilio, president of the IRC and chief insurance officer at the Insurance Information Institute (Triple-I), pointed out that affordability is expected to decline even further in 2023 and 2024. The share of household income spent on auto insurance is projected to rise to around 1.6% in 2023 and 1.7% in 2024. While this is an increase from the low of 1.4% in 2021, it is still below the peak of 1.9% recorded in 2003.
Florida, which was ranked as the second least affordable state for auto insurance in 2022, is taking steps to address this issue. Recent legislative reforms aim to improve affordability by reducing claim-related lawsuits and increasing the number of insurers in the state, which could help stabilize rates.
Several factors influence auto insurance affordability. These include the frequency of accidents, repair costs, the severity of injury claims, the expenses insurers incur to process claims, and the number of uninsured or underinsured motorists. States with more litigated claims also tend to see higher insurance costs. Porfilio emphasized that while data does not specifically address the affordability challenges for underserved communities, tackling these cost drivers can help make insurance more accessible for everyone.
The IRC is a nonprofit organization that provides insights on public policy issues affecting the insurance industry and consumers, but it does not engage in lobbying or legislative advocacy.
As the auto insurance landscape continues to evolve, many are left wondering how these trends will impact their wallets in the coming years.