As Auto Insurance Premiums Spike, Some American Drivers Choose the Risk of Being Uninsured Over Financial Hardship
Insurance Intelligence Report
September 2023
Auto insurance is meant to protect drivers from many of the financial risks associated with driving. But as premiums have soared seemingly overnight, American insurance customers have had to make the difficult choice between their monthly budget and peace of mind on the road.
As inflation has affected all sectors of the economy, the costs of repairing and replacing damaged vehicles, medical costs and all other costs associated with an auto insurance claim have increased substantially. Consequently, auto insurance premiums have increased at an unprecedented rate during the past two years (7.9% in 2022, and another 5.9% in the first six months of 2023). As a result, an increasing number of insurance customers in the United States are finding they are no longer able or willing to pay for auto insurance.
According to data collected by JD Power, the number of American households with at least one vehicle who say they do not have auto insurance has risen in the first half of 2023, up to 5.7% from 5.3% in the second half of 2022. What’s more, the percentage of customers who say they are shopping for auto insurance is 12.5% through the second quarter of 2023, an all-time high.
The Uninsured Legions
While an increasing number of drivers are uninsured, some geographical regions have a far higher concentration of risk. JD Power research indicates that the rate at which people are electing to drop insurance has varied by state for some time, and the recent premium hikes have exacerbated the problem.
Most recently, in the first half of this year, 12 states have seen a 30% or more increase in the share of uninsured drivers compared with the second half of 2022. Two of those states have seen increases of more than 80%, as shown in the table below.
Washington D.C. and Hawaii saw the share of uninsured drivers decrease by more than 30%.
Lock Up the Loyalty
Inflation and rising loss ratios have made potential customer defection an unavoidable problem for the insurance industry. Auto insurers have found current premiums inadequate to pay for these increased claims costs, with the industry having spent 12% more on claims and other costs than all the dollars that they collected in premiums in 2022. It’s the second consecutive year that carriers have been operating at such a deficit.
The conundrum, though, is that customers—particularly those who have not had any incidents in the past two years—simply see rate hikes. And if their driving record is clean, the hikes feel arbitrary and unjust. Carriers need to find a way to communicate with their customers on any value they can add, explain their policies to them, and potentially find unneeded features that they could trim to lower their costs. Customer loyalty is usually earned in times of turbulence. Insurers that can rise to the occasion may see added benefits in the form of increased customer loyalty and advocacy when conditions improve.
What Should Consumers Do?
It’s certainly understandable that some customers would rather roll the dice than torpedo their monthly budget. But driving without insurance isn’t a long-term solution and often invites trouble. That begs the question: What alternatives do customers have?
The first step is to take a proactive approach with insurers. Customers can and should negotiate with their insurance provider by asking about changes they can make to their policies that could lower their premiums (e.g., changing deductibles or coverage limits, applying all eligible discounts). Many insurers also offer payment plans and other special payment date options for customers experiencing financial stress. It is often incumbent on the customer to pursue those special offers, however.
Price shopping should also become an annual rite of passage for price-conscious consumers. Whether through independent agents, who can often shop for the most competitive offers on behalf of their clients, or by researching online and contacting providers directly, insurance customers are often able to find a better deal simply by shopping their policies.
Likewise, drivers who remain insured should consider reviewing their uninsured/underinsured motorists coverage with an insurance professional. With more uninsured motorists on the road, ensuring proper coverage can offset some of the risks of being involved in a collision with someone who is not currently or adequately insured.
Find out More
This Insurance Intelligence Report was authored by Stephen Crewdson, CPCU, senior director global insurance intelligence at JD Power. Please contact us at the numbers below to connect with Mr. Crewdson or to learn more about the underlying research.
Media Contacts
Brian Jaklitsch; East Coast; 631-584-2200; [email protected]
Geno Effler, JD Power; West Coast; 714-621-6224; [email protected]
