Find Your Perfect Policy: 866-843-5386

Last updated: June 28, 2023

Why 15 Percent of Drivers Let Their Car Insurance Lapse

Policyholders are feeling the pinch in their wallets and are letting insurance lapse.

Share
Twitter brand
Facebook brand
Linkedin brand
Reddit brand
Envelop icon

Most states require drivers to have car insurance or face stiff penalties, except New Hampshire and Virginia. Yet, 15 percent of drivers let their car insurance lapse in the first quarter of 2023. This trend concerns insurers and other insured drivers. But why are drivers letting their insurance lapse in the first place?

Why 15 Percent of Drivers Have a Lapse in Car Insurance

Transunion reports that 15 percent of drivers let their insurance lapse in the first quarter of 2023.1 There are many reasons for this. One reason is that they forget to pay the premium when it is due. Additionally, some people may have trouble getting insurance after a policy is deemed nonrenewable due to too many accidents or tickets.

But the Transunion report found that of those people allowing policies to lapse, 30 percent of them said it was due to their inability to pay. Essentially, rates have gone up too high, and policyholders are unable to afford the payments.

Why Are Car Insurance Rates Going Up?

To better understand why consumers are letting policies lapse, we should look at why rates are skyrocketing.

One of the reasons is that auto parts prices are increasing. In fact, in 2023, prices of parts have jumped 20 percent, according to the Bureau of Labor Statistics.1 This spike is in part due to supply chain issues and inflation. Body shops and mechanics have to pay more for the parts, which they pass down to the insurance companies paying the claims.

Additionally, repair times are taking longer. The labor force is small, and auto body shops and mechanics are struggling to get the right staff to fill the roles. This lack of staff leads to an extended time for auto insurance companies to pay for rental cars while insured cars are in the shops.

TIP:

Keep your rates as low as possible by having a good driving record. Those with good driving records get the most favorable rates from insurance carriers.

How High Have Insurance Rates Gotten?

Insurance rates have increased annually for the past nine years, dating back to 2014. From 2022 to 2023 alone, annual rates increased from $1,650 to $1,886.

TIP:

If you’re thinking about buying a new car, consider getting a different type of car to get better rates. You may find that a sedan will have better pricing compared to a sports car.

Consumers Shop for Better Rates

The same Transunion report notes that consumers are shopping for better insurance rates more often. In March of 2023, the number of high credit shoppers (those with credit scores of 701 or higher) increased 13 percent year over year. This statistic means that one of the most sought-after groups of drivers, those with high credit, are on the move, unhappy with renewal rates.

Those with good credit scores of between 501 and 700 saw a decrease in shopping by 13 percent, while those with poor credit saw a drop of 4 percent. People in these categories are staying where they are or letting policies lapse.

Additionally, consumers are getting more car insurance quotes from multiple sources, looking for the best deals. The number of inquiries has increased from 1.43 to 1.55 per consumer. Consumers are going to agents to find better deals, with a 25 percent increase in insurance agent shopping in Q1 of 2023 compared to 2022.

What Is a Lapse in Auto Insurance Coverage?

A lapse in car insurance coverage is when your coverage stops after a specific date, and you no longer have insurance for an automobile. If you choose to cancel your insurance policy without having another policy in effect, this is a voluntary lapse in coverage.3 It’s important to remember that some insurers will charge you more when you purchase a policy if there has been a previous gap in insurance coverage.

Why Insurance Carriers Choose to Drop or Not Renew Policies

There are many reasons that an insurance carrier may choose to cancel or not renew a policy. One of the most common reasons is that the policyholder did not pay for car insurance past the grace period, often because they could not afford an increased rate.

Another reason is that policyholders may have too many accidents, claims, or tickets, making them high-risk drivers. At some point, many large carriers will drop them, forcing them to go to more expensive, specialized carriers. Insurance fraud is another reason carriers will drop policyholders.

Sometimes, there’s nothing that the driver did to have the car insurance company not renew the policy. The carrier may simply choose to no longer service the area due to higher risk overall.

Recap

Since many policyholders are allowing policies to lapse due to prices, it’s important for all policyholders to shop around for better rates and get the best prices possible. Find the best cheap car insurance for you.

FAQs

Is it bad to let insurance lapse?

Yes, it is bad to let insurance lapse because it leaves you without the protection insurance offers. If you are in a car accident when the coverage lapses, you must pay for all damages out of pocket. Plus, it is illegal in most states to operate a vehicle without insurance.

How do you get around a lapse in insurance coverage?

You can’t get around a lapse in coverage. If you have a gap in insurance, you can’t backdate a new policy. To prevent a lapse in coverage, shop around for better rates or for a carrier that can take you on as a risk. You may need to break payments down into monthly installments to afford a policy, but it will insure you once again and get you back on the road legally.

Citations

  1. Q2 Insurance Personal Lines Trends and Perspectives. TransUnion. (2023).
    https://www.transunion.com/content/dam/transunion/global/business/documents/ins-2023/ins-23-f136046-personal-lines-trends-and-perspectives-q2-trends-report_final.pdf

  2. Economic News Release: Table 2. Consumer Price Index for All Urban Consumers (CPI-U): U. S. city average, by detailed expenditure category. U.S. Bureau of Labor Statistics. (2023, May).
    https://www.bls.gov/news.release/cpi.t02.htm

  3. Car Insurance Lapse. AARP Auto and Home Insurance Program. (2023).
    https://www.thehartford.com/aarp/car-insurance/car-insurance-lapses