Inflationary pressures coupled with soaring insurance premiums have pushed a growing number of drivers to forgo auto insurance, reveals recent data from J.D. Power. The study indicates that the percentage of households with at least one uninsured vehicle surged from 5.3% in the latter half of 2022 to 5.7% in the first half of 2023.
This uptick follows a staggering 7.9% surge in auto insurance premiums in 2022, with an additional 5.9% spike recorded in the initial six months of this year. Such trends are compounded by persistent inflation, compelling American consumers to make substantial cuts in their budgets after exhausting nearly all of the $2.1 trillion in pandemic-related savings.
“Consumers are stretched thin after nearly drawing down all their $2.1 trillion of pandemic-related savings, amid still high inflation and slowing income gains,” noted Kathy Bostjancic, chief economist at Nationwide, in response to the August retail sales data release this Thursday.
In August alone, the cost of auto insurance witnessed an astonishing year-over-year surge of over 19%, with a 2.4% uptick from July, as per the latest inflation data. This far surpasses the overall inflation rate for the same month. The surge in premiums is attributed to the escalating costs related to vehicle repairs, medical care, and other associated expenses.
Robert Passmore, Vice President for the American Property Casualty Insurance Association (APCIA), explained, “In addition to inflation trends, the private passenger auto insurance sector is also experiencing several other trends such as increased frequency and severity of claims cost, riskier driving behavior by the public, cost increases for medical and hospital services, and outsized growth in lawsuit verdicts and legal system abuses, that are negatively impacting and pressuring the industry with increased losses.”
As the looming burden of student loan repayments approaches, a significant portion of Americans are contemplating the abandonment of car insurance as a means to make ends meet. A recent survey by New York Life disclosed that over a quarter of Americans with student debt express uncertainty regarding their ability to meet their obligations come October. Of those who believe they can meet their payments, 23% anticipate having to reduce other expenditures to do so.
Analysis by J.D. Power further revealed that specific regions experienced higher concentrations of uninsured drivers. In 12 states, the proportion of uninsured drivers rose by 30% or more compared to the latter half of 2022. The five states with the highest incidence of uninsured drivers were South Dakota, New Hampshire, West Virginia, Oregon, and Indiana.
Worryingly, the current surge in premiums has failed to cover mounting claims costs. The J.D. Power report disclosed that in 2022, the auto industry expended 12% more on claims than it garnered in premiums. This marked the second consecutive year of such a deficit.
Equally concerning, the Insurance Information Institute (Triple-I) stated that auto insurers disbursed $1.12 in claims for every $1 they received in premiums last year. Although this year shows a slight improvement at $1.09, it still exceeds premium collections.
“The industry has not had this poor of a full year underwriting performance in decades,” cautioned Dale Porfilio, chief insurance officer of Triple-I, in May of this year. “Unless replacement cost trends begin to decrease materially — which is not currently forecast — it will take the industry into at least 2025 to restore personal auto results to underwriting profitability.”
For drivers grappling with escalating premiums, J.D. Power advises contacting their insurer to negotiate a lower premium and explore potential discounts, particularly if they maintain a clean driving record. Additionally, consumers are urged to compare rates and consult independent agents to secure competitive quotes. To mitigate the risks posed by the surge in uninsured drivers, those with coverage are encouraged to consider increasing their uninsured/underinsured coverage, providing essential protection in accidents involving drivers without adequate insurance.
Source: Yahoo Finance
