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IRC Releases State-by-State Auto Insurance Affordability Rankings

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Louisiana, Florida, and Michigan remain the least affordable states for auto insurance, while Iowa remains the most affordable, according to a new study from the Insurance Research Council (IRC). 

The report, Auto Insurance Affordability: Countrywide Trends and State Comparisons, looks at auto insurance expenditures as a share of median household income. The IRC affordability index ranges from a low of 1.02 percent in Iowa to a high of 3.09 percent in Louisiana. A higher ratio indicates less affordable insurance in the state.

The index uses median household income data from the U.S. Census Bureau and auto insurance expenditure data published by the National Association of Insurance Commissioners (NAIC).  The rankings are based on 2018 data (the most recent available). Since 2018, Michigan has enacted reforms aimed at lowering auto insurance expenditures for Michigan’s drivers.

Some affordability studies estimate insurance costs by gathering quotes for minimum coverage.  The NAIC measure, by contrast, provides an estimate of what consumers actually spend per insured vehicle.  The index isn’t intended to serve as an absolute threshold for when auto insurance becomes affordable. This would be entirely subjective, as different parties can reasonably disagree about what constitutes affordable insurance. Rather, it’s a tool to compare auto insurance affordability over time and across jurisdictions.

Underserved communities not directly addressed

The index also does not address the important issue of affordability among underserved populations, which would require more granular data than used for this analysis. It is important to note that affordability for traditionally underserved consumers is determined by underlying costs, just as it is for the overall population.

A recent analysis of NAIC data showed that the higher premiums in lower-income ZIP codes were in line with the higher claim costs in those areas. Efforts to improve auto insurance affordability in those areas must address these higher costs.

While state-level data cannot directly address affordability among these populations, collaborative efforts to reduce the following key cost drivers can improve affordability for all consumers:

  • Accident frequency related to traffic density, road conditions, and other factors that lead to more frequent accidents in some states.
  • Repair costs, which vary widely by state.
  • Tendency to file injury claims, which tends to be higher in less affordable states.
  • Injury claim costs.
  • Attorney involvement, which is associated with higher claim costs and delays in settlement.
  • Claim abuse – Insurance fraud is a factor in the high cost of insurance. 

In a letter responding to a federal request for information, Triple-I earlier this year said U.S. auto insurers accurately price their policies by using a wide variety of rating factors.  All these factors must conform to the laws and regulations of the state in which the auto insurance policies are sold.

“Lower-risk drivers should pay less for auto insurance, and premiums have closely tracked broader U.S. economic trends for decades,” Triple-I told the U.S. Treasury Department’s Federal Insurance Office (FIO) in its letter.

The letter also said the rating factors U.S. auto insurers use to price their policies not only serve their purpose but are constantly retested to ensure their accuracy and reliability.

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