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The Implications of Rising Auto Premiums and The True Costs of Uninsured Drivers

Rising premiums are impacting personal auto clients, who are searching for ways to curb their expenses—including driving without coverage.
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the implications of rising auto premiums and the true costs of uninsured drivers

The number of drivers looking to buy more than state-minimum limits dropped 51% in the first half of 2023, according to data from Insurify's “2023 Mid-Year Auto Insurance Trends Report." On the flip side, the number of drivers looking to buy liability-only coverage increased by 86%, the report said. 

Rising insurance premiums are having a profound impact on the behavior of consumers, who, amidst inflation, are searching for ways to curb their expenses, including seeking more affordable insurance options—or even considering driving without coverage.

Throughout 2023, premiums have continued to “surge due to various factors, including heightened repair costs, distracted driving incidents and escalating medical expenses," says Steve Rivera, partner and national private client practice leader, The Liberty Company Insurance Brokers. “Notably, the combination of hyperinflation and supply-chain issues has contributed to increased repair costs. Some regions, such as California, are now witnessing changes in rate approvals, with carriers requesting double-digit rate increases to compensate for past rate stagnation."

As policyholders look for ways to deal with increasing premium rates, many are going down the route of reducing the level of coverage they purchase, creating a worrying trend as drivers leave themselves open to out-of-pocket costs when it comes to accidents and damage from weather events. 

Forty-five percent of respondents to the Deloitte Center for Financial Services' “2024 Global Insurance Outlook" between 18 and 34 years old said they've thought about going without auto insurance in the past year as a result of increasing premiums, and 17% of respondents said they are already driving uninsured. Nationally, there are around 29 million uninsured drivers in the U.S., meaning that about one in eight drivers doesn't have auto insurance, according to ValuePenguin

The result is a lose-lose-lose situation for the economy, insureds and insurers. “The uptick in individuals driving with minimal or no auto insurance has several implications," Rivera says. While “insured drivers face greater risk and potential financial losses in accidents with such motorists, additionally, the health care system may feel the strain as uninsured drivers often rely on public resources for medical costs. Further, legal complexities in accidents involving insufficiently insured drivers can further raise overall costs for individuals and society."

In an attempt to return to profitability, “insurers across the board are exercising greater scrutiny in their underwriting processes, and this heightened vigilance is driven by the rising costs associated with insurance claims," Rivera says. A Delaware County, Pennsylvania, jury recently awarded $3.6 million in damages following injuries resulting from a “minor rear-end" accident on Interstate 95.

This award is described as part of a trend of juries nationwide awarding sizable verdicts. “The combination of these factors has led to a more cautious approach by insurers when it comes to extending coverage in the personal auto insurance market," Rivera says.

As auto premiums continue to rise, with a 5.9% increase in the first six months of 2023, the number of policyholders shopping around has also increased. One-third of drivers in general said they've considered switching car insurance companies in the past year because of high rates, according to the “2023 Policygenius Car Insurance Affordability Survey."

While 15% of all drivers say they switched providers, younger drivers are much more likely to have made the switch. One-quarter of drivers ages 18-34 switched car insurance companies in the past year because of high costs.

As carriers continue to grapple with record-breaking losses that have risen 15% since 2020 while standardized premium fell 13%, according to the Insurance Information Institute (Triple-I), “many insurance companies have adopted measures to restrict the ease of shopping for new auto insurance policies," Rivera says. “This includes some companies opting out of comparative rating systems, imposing requirements for paper applications and implementing waiting periods of 15 days or more. These measures have primarily been aimed at curbing the growth of new policies."

Independent agents can play a key role in providing policy and coverage options for their auto clients, making sure they don't leap out of the frying pan and into the fire by driving without insurance. 

Olivia Overman is IA content editor.

Monday, January 29, 2024
Big I Markets