Louisiana, Florida and Michigan are the three least affordable states for personal auto insurance, according to a new report from the Insurance Research Council (IRC). The three most affordable states, the IRC finds, are Hawaii, New Hampshire and North Dakota.
The IRC̵7;s affordability rankings for states — like Triple-I, a subsidiary of The Institutes — are based on insurance spending as a share of median household income. The report is based on data from the National Association of Insurance Commissioners (NAIC), which is only available through 2019 and therefore does not reflect more recent circumstances, such as the pandemic and the inflationary effects of supply chain disruptions and the war in Ukraine.
Prior to these events, car insurance nationwide had become more affordable since the 1990s, when premiums as a percentage of median household income averaged 1.9 percent. In the 2010s, it had decreased to 1.6 percent, and in 2019 it was 1.56 percent.
During this 30-year period, the median household income increased by 2.9 percent annually.
Affordability varies dramatically by state, with Hawaii being the most affordable, with expenses amounting to 0.95 percent of income. The least affordable state is Louisiana, with the average expense-to-income ratio more than three times higher, at 3.01 percent.
The report notes that efforts to reduce these costs must focus on key cost drivers, including accident rates, repair costs, relative frequency of claims, severity of claims, medical utilization, attorney involvement, claims abuse, uninsured motorists and litigation.
Pandemic and post-pandemic risk on US highways may also affect future price trends. After decades of decline, U.S. traffic deaths have increased in recent years due to more speeding, driving under the influence and failure to use seat belts during the pandemic. In 2021, US traffic deaths reached a 16-year high, with nearly 43,000 deaths.
“When the daily grind came to a halt in March 2020, risky behaviors soared and traffic fatalities increased,” said National Highway Traffic Safety Administration (NHTSA) Administrator Steven Cliff. “We had hoped that these trends were limited to 2020, but unfortunately they are not.”
In 2022, NHTSA estimates, 9,560 people died in motor vehicle crashes between January and March, a 7 percent increase from the same period in 2021, making it the deadliest first quarter since 2002.
The IRC report highlights the role of attorney involvement in driving up insurance company costs—and ultimately policyholder premiums—in states where auto coverage is least affordable. Because attorney involvement tends to be more prevalent in personal injury cases, the NHTSA numbers are important to understanding the expected upward pressure on premium rates.
All of these factors contribute to increased frequency and severity of claims and ultimately higher premiums as insurance companies attempt to maintain required surplus levels to ensure their ability to deliver on their promises to policyholders.