MALVERN, PA — Auto insurance affordability has taken a hit in recent years, with rising premiums outpacing income growth, according to a new study by the Insurance Research Council (IRC), an affiliate of The Institutes. Covering trends from 2000 through 2024, the study highlights both long-term improvements and recent declines in affordability.
From 2021 to 2024, auto insurance affordability deteriorated as insurers raised rates to offset inflation-related costs. Despite the recent decline, the study found that auto insurance today remains more affordable compared to the mid-2000s. For context, U.S. households in 2022 spent an average of $1,127 per vehicle on auto insurance, which accounted for 1.51% of the median household income of $74,580. This was a slight increase from the previous year and a notable rise from the affordability peak in 2021.
“Affordability is projected to deteriorate further, with expenditures expected to account for 1.6% of median household income in 2023 and 1.7% in 2024,” said Dale Porfilio, FCAS, MAAA, president of the IRC. However, he added, “this remains below the 1.9% peak seen in 2003.”
Long-Term Trends Show Improvement
The study underscored a silver lining, showing that overall affordability has improved across the past two decades. Since 2000, median household income has generally outpaced increases in auto insurance costs, with the percentage of income spent on premiums dropping from 1.64% in 2000 to 1.51% in 2022.
Wide State-Level Variations
Affordability differs substantially across states. North Dakota had the lowest auto insurance expenditure share in 2022, at just 0.93% of median income, while Louisiana represented the least affordable state at 2.67%. Florida, ranked as the second least affordable state, has recently seen progress through legislation aimed at stabilizing premiums, reducing lawsuits, and attracting more insurers.
The IRC highlighted several cost drivers of affordability challenges, including accident frequency, repair costs, injury claim severity, claim-related litigation, and rates of uninsured and underinsured motorists. States with higher occurrences of these issues tend to face the greatest affordability challenges.
Porfilio, who also serves as chief insurance officer of the Insurance Information Institute (Triple-I), emphasized the role of collaboration in tackling these issues. “While state-level data cannot directly address affordability issues among traditionally underserved populations, collaborative efforts to reduce these key cost drivers can improve affordability for all consumers,” he noted.
Path Forward
As insurers and state authorities grapple with cost drivers and reform opportunities, the challenge of making auto insurance more equitable and affordable remains a priority for the industry and policymakers alike.
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