In response to rising premiums, 10% of drivers are reducing their insurance coverage, and 25% are slashing household spending.
While it’s nice to see that inflation rates are slowly descending from their peak after the pandemic, the premiums on auto insurance renewals are still causing sticker shock for drivers. Although drivers have been paying slightly less for other goods and services in recent months, the escalating cost of car insurance motivates drivers to search for every possible means to make auto insurance more affordable. Rising prices are also driving consumers to shop around for quotes and could create a massive shift across the industry.
How big is the problem, and what steps will drivers take to keep their car insurance active? Will drivers resort to changing their coverages and deductibles? How many will take the drastic step to stop driving altogether? To get answers to these and other questions, we asked 1,000 drivers how much their premiums have increased and how they plan to manage their auto insurance costs.
Here are some of our key findings:
Our study showed that 35 percent of drivers noticed increased insurance premiums over the past six months. Premiums for one driver and one car will cost 22 percent more on average. This is a significant increase, given that the current inflation rate is just six percent.1
Our results also showed that only three percent of drivers had already received a notice from their auto insurance providers that their premiums would increase at the next renewal.
Across the U.S., auto insurance costs are also increasing due to surges in repair costs, mechanical labor, and medical costs. Additionally, drivers are apt to hire an attorney if they have an accident, and lengthy court trials add to insurers’ costs.
The increases in auto insurance impact the large numbers of Americans living from one paycheck to the next with no room to spare. One study showed that 64 percent of Americans were living paycheck to paycheck as of December 2022.2
The overarching concerns about the economy are causing stress and anxiety for drivers countrywide. Many consumers have little to spare in their budgets to pay more for household goods and auto insurance. In fact, about one in four drivers are moderately or extremely concerned about rising insurance costs.
The impact of higher auto insurance costs spans upper- and lower-income earners. Our research showed that 31 percent of drivers earning more than $75,000 are very concerned about paying for their car insurance. Of course, lower-income populations making less than $75,000 expressed the most concern about paying higher auto insurance premiums. For people living on fixed incomes, it may soon be impossible to pay for car insurance.
11 percent of drivers pay more for their car insurance than their car payments, and seven percent of drivers spend more on insurance than household utilities?
How do people cope when budgeting for higher auto insurance costs? Unfortunately, we discovered that some drivers have no choice but to make drastic changes.
The chart below shows that most people plan to get quotes or switch insurance companies for lower rates, which is an excellent first course of action. If your commute is short or you work from home, paying per mile for insurance may be another great option. Your credit score counts, and keeping a good score can reduce your rates.
You may opt to increase your comprehensive and collision deductibles, but be aware that you will have to pay more if you have a claim, so the savings might not be as much as you think.
The least favorable options are canceling your policy, reducing coverage limits, and carrying only the state minimum coverage. If you get into an accident, you could pay huge sums for property damage and medical payments to others.
A car insurance company may suggest you install a telematics device that measures your driving habits to lower your insurance. However, you could pay more than the initial rate once the insurance company gets the results. In fact, more than 40 percent of drivers reported an increase in their premiums after using a telematics option.3
Our research showed that a few drivers would lie to their insurers to lower their rates. Some would report driving less than they actually do, and others would lie about their address to get a lower rate. Insurance companies consider this fraud in either case. If you get caught, an insurance company can charge you the difference, cancel your policy, or pursue fraud charges against you. It’s not worth taking a chance to commit fraud. Honesty is the best policy when applying for car insurance.
When talking with your current agent or getting quotes, ask how you can maximize discounts, including discounts for multiple vehicles, being a good student, bundling policies, defensive driving, having a new car, being accident-free, having low mileage, paying in full, or being a military member.
When you’ve done your best to acquire the lowest possible auto insurance rate, and it’s still higher than you can afford, you may need to tighten up your budget in other ways. The chart below demonstrates the creative steps some drivers are taking to compensate for higher auto insurance premiums:
Stopping driving, selling a car, or moving closer to work, are extreme choices, yet they may be necessary even for a short while. Our survey showed that 13 percent of drivers would settle for working more hours or getting a second job to make up the difference, and seven percent are mustering up the courage to ask the boss for a raise. However, your lifestyle, income, and budget will help you determine the best choices for your car insurance coverage.
It would be easy to blame higher rates solely on the insurance companies. Yet, insurance providers rely heavily on actuarial data that informs them about how much car insurance should cost. Due to fraud, insurers are battling rising claims and higher costs in auto repairs, car parts, medical payments, and expenses. They must pass some of these costs onto their consumers.
Nonetheless, with over 500 car insurance providers in the United States to choose from, drivers have a good shot at finding one that works within their budgets.
In March 2023, we conducted an internet-based poll of 995 American drivers about their auto insurance spending. Ninety-three percent had active auto insurance policies. While there are a wide variety of factors that impact insurance rates, 80 percent of drivers in our study had one or two cars and one or two drivers on their policies. Fifty percent of respondents were female and 50 percent were male. They ranged in age from 18-84 with a mean of 41.7. Seventy-seven percent were white, eight percent were Asian, six percent were Black, five percent were multiple races, and the remainder were another race or chose not to report. Thirty-four percent had a household income of less than $50,000 annually, 38 percent earned between $50,000 and $99,999, 22 percent earned between $100,000 and $199,999, and five percent earned more than $200,000 annually. One percent did not report income.
Current US Inflation Rates: 2000-2023. US Inflation Calculator. (2023).
9.3 Million More U.S. Consumers Ended 2022 Living Paycheck to Paycheck Than in 2021. LendingClub. (2023, Jan 30).
Shopping for auto insurance surges to all-time high as consumers search for better rates: J.D. Power. Fox Business. (2023, Mar 7).