IRC RELEASES STATE-BY-STATE AUTO INSURANCE AFFORDABILITY RANKINGS

 Louisiana, Florida and Michigan are the least affordable states for auto insurance, while Iowa is the cheapest, according to a new study by the Insurance Research Council (IRC).

The report, Auto Insurance Affordability: Countrywide Trends and State Comparisons, looks at auto insurance costs as part of the average household income. The IRC Affordability Index is down from 1.02 percent in Iowa to a high of 3.09 percent in Louisiana. A higher ratio indicates less affordable insurance in the state.

AUTO INSURANCE AFFORDABILITY RANKINGS

The index uses the average household income data from the U.S. Census Bureau and auto insurance expense data published by the National Association of Insurance Commissioners (NAIC). The ranking is based on 2018 data (most recent available). Since 2018, Michigan has enacted reforms aimed at reducing auto insurance costs for Michigan drivers.

Some affordable studies estimate insurance costs by collecting quotes for minimum coverage. The NAIC criteria, in contrast, provide an estimate of what consumers actually spend per insured vehicle. The index is not intended to serve as a specific threshold when auto insurance becomes cheaper. This would be entirely subjective, as different parties may reasonably disagree on what constitutes affordable insurance. Instead, it is a tool to compare the affordability of auto insurance across time and jurisdictions.

Underserved communities are not addressed directly

The index also does not address the critical issue of nutrition in the low-service population, which would require more granular data than is used for this analysis. It is important to note that traditionally for undersaved customers, affordability is determined by the underlying cost, as it is for the overall population.

A recent analysis of NAIC data showed that higher premiums in low-income zip codes were consistent with higher claim costs in those areas. Efforts to improve the affordability of auto insurance in those areas should address these high costs.

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

Accident frequency related to traffic congestion, road conditions and other factors that lead to more frequent accidents in some states.

Repair costs, which vary widely by state.

The tendency to file injury claims is more prevalent in less affordable states.

Injury claims costs.

Involvement of a lawyer, which is associated with high litigation 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 stated earlier this year that US auto insurers use a variety of rating factors to determine the exact value of their policy. All of these factors must be consistent with the laws and regulations of the state in which the auto insurance policy is sold.

"Low-risk drivers should pay less for auto insurance, and premiums have closely tracked broader US economic trends for decades," Triple-I said in a letter to the US Treasury Department's Federal Insurance Office (FIO).

The letter also states that the rating factors used by US auto insurance companies for the value of their policies are constantly being re-examined not only to meet their objectives but also to ensure their accuracy and reliability.