Is Driving Becoming a Luxury? Examining Auto Insurance Affordability
According to a new study, despite recent increases, personal auto insurance remains more affordable than it was in the mid-2000s. The study, conducted by the Insurance Research Council (IRC), an affiliate of The Institutes, analyzed trends in the cost of auto insurance relative to household income. The report, titled “Auto Insurance Affordability: Countrywide Trends and State Comparisons,” indicates that while affordability has improved over the long term, recent data suggests a decline.
From 2000 to 2022, the cost of auto insurance as a percentage of median household income generally decreased. However, affordability challenges have emerged, particularly between 2021 and 2024. In 2022, the most recent year for which comprehensive data is available, U.S. households spent an average of $1,127 per vehicle on auto insurance, which represented 1.51% of the median household income of $74,580. This marked a slight increase compared to the previous year.
State-by-state variations in auto insurance costs revealed significant disparities. North Dakota showed the lowest expenditure share 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), projects that affordability will further decline in 2023 and 2024. He anticipates that the percentage of household income dedicated to auto insurance will increase to approximately 1.6% in 2023 and 1.7% in 2024. Although this represents a notable rise from the low of 1.4% in 2021, it is still less than the peak of 1.9% recorded in 2003.
Florida, identified as the second least affordable state for auto insurance in 2022, has taken steps to improve affordability. According to Triple-I research, key legislative reforms passed in 2022 and 2023 have led to a reduction in claim-related lawsuits and an increase in insurers operating in the state, which could potentially stabilize rates.
The study also highlights several key factors influencing auto insurance affordability:
- Accident frequency: Factors like traffic density, road conditions, and driving behaviors influence the number of accidents in each state.
- Repair costs: Variations in vehicle repair expenses affect the insurance prices.
- Injury claim frequency and severity: Higher rates and larger payouts stemming from injury claims drive some states’ costs up.
- Expense index: Insurers’ operational costs for processing and investigating and settling claims affect prices.
- Uninsured and underinsured motorists: High rates of uninsured drivers can stress the system and increase costs for insured motorists.
- Claim litigation: States with a higher proportion of litigated claims tend to experience increased insurance costs.
Porfilio underlined that while state-level data does not particularly address affordability challenges faced by underserved communities, addressing these cost drivers can help make coverage more accessible for all consumers.
The IRC, a nonprofit research entity, provides independent insights into public policy issues affecting the insurance industry and consumers. The organization does not engage in lobbying or legislative advocacy.
