‘House poor' Americans now can’t afford insurance, too
About one in ten American homeowners pass on home insurance because premiums are too high. Now, these “house poor” families are struggling to afford auto insurance, too.
According to a 2023 survey by the Insurance Information Institute, 12% of U.S. homeowners don’t buy homeowners insurance. About half of them earn less than $40,000 a year.
It’s not hard to see why low-income households are passing on home coverage.
As of this January, it costs $1,687 annually to insure a $250,000 home—an increase of 18% from the previous year. Nationwide, the average cost of home insurance is $2,071 per year, according to Insurify, a digital insurance agency.
Rising insurance costs are yet another strain on Americans who are allocating a disproportional share of their income to housing costs.
According to Creditnews Research, nearly one in three American families spend more than 30% of their income on housing. The percentage is closer to 40% for families who are still paying down their mortgage.
As bad as home insurance premiums have gotten, auto insurance rates are growing even faster. But unlike home insurance, basic auto coverage is mandatory for drivers.
Auto insurance rates spike
Between 2021 and 2023, auto insurance premiums have surged by 30.5% from $1,268 to $1,668 per year, according to Insurify data.
By comparison, average nominal wages increased by just less than 12% over the same period.
Rising auto insurance premiums are becoming a major budgetary concern for households. By Creditnews calculations, insurance payments as a percentage of gross income have increased from 2.4% to 2.9% over the last two years.
Experts say insurance prices aren't likely to drop anytime soon simply because the costs on the insurer's end keep growing.
“Rates need to rise probably 5 to 10% in each of the next couple of years, because the loss trends have gone up so much,” Dale Porfilio, chief insurance officer at the Insurance Information Institute, told The Wall Street Journal in August 2023.
Where are insurance rates headed this year? According to LendingTree data, auto insurers are projecting to raise premiums by 12.6% in 2024—the highest in six years.
The highest rate increases are expected in Nevada, Washington, Arizona, Connecticut, Louisiana, and Georgia.
Insurers struggle to turn a profit
The costs of auto and home coverage are likely to keep growing because insurers are increasingly losing money due to inflation, climate risks, and a spike in auto thefts.
Data from credit rating agency AM Best showed that property-casualty insurers—companies that issue both home and auto insurance—registered $32.2 billion in underwriting losses between January and September of last year.
In fact, according to Fitch Ratings, the whole insurance sector is in the red. The credit rating agency gave a negative assessment of the U.S. property, casualty, and auto insurance markets in 2023.
The outlook on auto is especially dire. For auto insurers, “an underwriting profit is unlikely in the next few years,” Fitch said.