Facts + Statistics: Auto insurance

Costs and expenditures

The countrywide average auto insurance expenditure rose 5.0  percent to $1,056.55 in 2018 from $1,006.33 in 2017 according to the National Association of Insurance Commissioners. In 2018 (the latest data available), the average expenditure was highest in Louisiana ($1,545.82) followed by Michigan ($1,469.73), and the District of Columbia ($1,429.43).

To calculate average expenditures the National Association of Insurance Commissioners (NAIC) assumes that all insured vehicles carry liability coverage but not necessarily collision or comprehensive coverage. The average expenditure measures what consumers actually spend for insurance on each vehicle. It does not equal the sum of liability, collision and comprehensive expenditures because not all policyholders purchase all three coverages. The average expenditure measures what consumers actually spend for insurance.

AAA’s 2020 Your Driving Costs study found that the average cost to own and operate a 2020 model vehicle was $9,561 in 2020. The average insurance cost for medium sedans was $1,245, down from $1,251 in 2019. AAA insurance cost estimates are based on a full coverage policy for a driver who is under 65 years of age, has more than six years of driving experience, has had no accidents and lives in a suburban/urban location. The coverage is for a policy with $100,000/$300,000 personal liability, $25,000 medical, $100,000 property and $25,000/$50,000 uninsured/underinsured motorist coverage, with a $500 deductible for collision and comprehensive claims. These figures are not comparable with the National Association of Insurance Commissioners’ auto expenditures data, below.

Auto insurance expenditures, by state

The tables below show estimated average expenditures for private passenger automobile insurance by state from 2014 to 2018 and provide approximate measures of the relative cost of automobile insurance to consumers in each state. To calculate average expenditures, the National Association of Insurance Commissioners (NAIC) assumes that all insured vehicles carry liability coverage but not necessarily collision or comprehensive coverage. The average expenditure measures what consumers actually spend for insurance.

Expenditures are affected by the coverages purchased as well as other factors. The NAIC does not account for policyholder classifications, vehicle characteristics or the amount of deductibles selected by the policyholder, differences in state auto and tort laws, rate filing laws, traffic conditions and other demographic variables, all of which can significantly affect the cost of coverage. The NAIC notes that three variables—urban population, miles driven per number of highway miles, and disposable income per capita—are correlated with the state auto insurance premiums. It also notes that high-premium states tend to also be highly urban, with higher wage and price levels, and greater traffic density. Many other factors can also affect auto insurance prices.

Auto Insurance Affordability

Louisiana, Florida and Michigan are the least affordable states for auto insurance, while Iowa is the most affordable state, according to a new study from the Insurance Research Council (IRC). The report, Auto Insurance Affordability: Countrywide Trends and State Comparisons, looks at the auto insurance expenditure share of income, which ranges from a low of 1.02 percent in Iowa for 2018, the latest data available, to a high of 3.09 percent in Louisiana. U.S. households on average spent 1.67 percent of their income on auto insurance. The IRC developed an affordability index based on average auto insurance expenditures published by the National Association of Insurance Commissioners (NAIC) (see charts here) and median household income from the U.S. Census Bureau. According to the IRC, Louisiana, Florida, and Michigan have maintained their respective rankings as the first, second, and third least affordable states since 2014. The IRC notes that since the index is a ratio, some states with high average auto insurance expenditures rate lower on the affordability rankings because of higher-than-average median income (such as DC), while other states are pushed up the ranks of least affordable states by having low median household income (such as Mississippi). The analysis discusses the affordability of auto insurance for the overall population and does not address the issue of affordability among underserved populations.

Premiums

Auto claims

Liability insurance pays for the policyholder’s legal responsibility to others for bodily injury or property damage. Collision and comprehensive insurance cover property damage and theft to the policyholder’s car.

The shared/residual market and nonstandard markets

All states and the District of Columbia use special systems to guarantee that auto insurance is available to those who cannot obtain it in the private market. These systems are commonly known as assigned risk plans. Assigned risk and other plans are known in the insurance industry as the shared, or residual, market. In assigned risk plans, high-risk policyholders are proportionally assigned to insurance companies doing business in the state. In the voluntary, or regular, market, auto insurers are free to select policyholders.

Motorists can also obtain auto insurance from the nonstandard portion of the private market. The nonstandard market is a niche market for drivers who have a worse than average driving record or drive specialized vehicles such as high-powered sports cars or custom-built cars. It is made up of both small specialty companies, whose only business is the nonstandard market, and well-known auto insurance companies with nonstandard divisions. AM Best estimates that the nonstandard auto market generated $16.9 billion in direct premiums in 2019. The market consists of about 130 mostly small- to medium-sized insurers whose nonstandard auto premiums account for more than 50 percent of their total net premiums written.

Insured Vehicles

In 2015, 203 million private passenger vehicles were insured in the United States excluding Texas, up from 198 million in 2014, according to latest data available from AIPSO. The figures include cars insured by private auto insurers in the voluntary market as well as those insured in the so-called shared or residual markets set up by states to cover hard-to-insure risks. In 2015 California had the most insured private passenger cars (26.3 million), followed by Florida (12.7 million) and New York (9.6 million), including vehicles in the voluntary and residual markets.

Collision losses

The chart below shows the claim frequency and average loss payment per claim and average loss payment per insured vehicle year under collision coverage for recent model vehicles. The claim frequency is expressed as a rate per 100 insured vehicle years. A vehicle year is equal to 365 days of insurance coverage for a single vehicle.

Consumer prices

The Bureau of Labor Statistics consumer price index (CPI) tracks changes in the prices paid by consumers for a representative basket of goods and services. The cost of living (all items) rose 1.2 percent in 2020. The cost of motor vehicle insurance declined significantly, down 4.6 percent, as insurers nationwide returned over $14 billion to their customers in response to reduced driving during the Covid-19 pandemic. The cost of tenants and household insurance declined slightly, down 0.5. percent. Hospital services rose faster than overall inflation, up 4.2 percent, and total medical care rose 4.1 percent.