Every smart driver on the road knows that having a complete auto insurance package is a no-brainer, but no one wants to spend a fortune every month to maintain their coverage in these uncertain times. Luckily, auto insurance rates are becoming more affordable every year, according to a recent report from the Insurance Research Council (IRC). The study revealed that car insurance has become more affordable in every state but six over the past 10 years, particularly for middle and lower-income consumers.
This general decrease in coverage cost was the result of many shifting conditions within a complex automotive economy. A number of different factors were noted by the IRC as contributing to the improvement of auto insurance affordability, including lower unemployment rates, moderate compensation for injuries and more competitive insurance markets. In addition to these, the study highlighted overall shifts toward reduced regulation of insurance prices, lower rates of uninsured motorists and smaller residual markets as other potential contributing factors.
"There has been increased interest from policymakers and others regarding auto insurance affordability over the past few years; and yet, little factual evidence has been brought to bear on the issue," noted Director of Research for the IRC, Patrick Schmid. "With this study, we now have an objective way to measure changes in auto insurance affordability in and among states. The findings show that affordability has been improving and points to several factors that may be driving that improvement."
Affordability for everyone?
While there is an air of optimism to the IRC study, another reputable source offers seemingly contradictory evidence and questions whether auto insurance prices are actually becoming more affordable. A recent report from the Consumer Federation of America (CFA), a research and advocacy organization, showed that the national average expenditure on car insurance has grown 43.3 percent from the years between 1989 to 2010. According to this study, only the state of California saw a decrease in average expenditure over this period of time - a decline of 0.3 percent.
Who are drivers to trust given these two differing studies? Phil Gusman, contributing writer to Property Casualty 360, provides some context in a recent report that discussed the affordability of auto insurance. He made the important distinction between improvement and affordability, reminding the consumer to look closely at the numbers before reaching a conclusion.
"So, when we show that the lowest quintile of Americans are asked to pay $1,000 - which is more than 10% of their income - for the required coverage, [the IRC is] saying it used to be $1,025," CFA Director of Insurance J. Robert Hunter told the news source. "So a guy who could afford, say, $400 for insurance now misses by 'only' $600, not $625 as earlier."
Each report has its merits
Property Casualty report noted that there is no objective standard by which someone can measure the affordability of car insurance, or anything for that matter. The idea of affordability is defined by an individual's financial circumstances and therefore cannot be accurately averaged on a national scale. The IRC study did reference its research with regard to middle- and lower-income households, but specific budgets and family requirements still do not allow much to be said about the national affordability of auto insurance.
"I guess IRC's point is that we would have seen something worse had we done the research 10 years ago, i.e., even more unaffordable," added Hunter, taking into account their use of current income levels and rates instead of those from the '90s.
Although a direct comparison of the two seems ultimately unhelpful, there is certainly something to be learned from both reports. Car insurance is always a good idea and should be tailored to a driver's personal needs and financial situation.