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How Economy Affects Car Insurance

When it comes to household expenses, the current state of the economy is forcing people to make incredibly tough decisions. These tough decisions are inclusive of auto insurance. With that being said, automobile owners have been known to cut corners or decrease their coverage in order to pay their other bills that they deem more important. According to the National Association of Insurance Commissioners (the NAIC), greater than half of American drivers have modified their insurance coverage or their driving habits as a measure of saving money over the past calendar year. 

Approximately 1,000 adults within the United States were surveyed by the NAIC and an estimated 53% stated that they made decisions (according to their financial circumstances) that affected the cost and amount of their automotive insurance. Of the changes that were made, included the following:

  • Almost 40% of the drivers that were surveyed contended that they decreased their driving over the past year. They opted for walking, carpools, biking as well as public transportation and driving services. A lengthy daily commute, increases the chance of experiencing a vehicular accident, therefore drivers chose to decrease their chances as well as a possible spike in insurance rates. This especially began to become popular as some companies began offering drivers “pay as you drive” policies. These are policies in which an insurer measures how many miles are driven and the premium is then adjusted accordingly. 
  • Nearly 20% stated that they streamlined their coverage or dropped it all together. This is an option that is illegal in the majority of states and quite risky. This is especially so should a driver eliminate liability coverage, which is mandated. 
  • 20% of drivers surveyed stated that they either traded in their current vehicle for one that require less insurance or got rid of a vehicle all together. This is due to vehicles that are deemed more practice or brimming with safety features and are less expensive to replace tend to garner lower insurance premiums.


The following changes can be made deliberately and often are when the economy is not at its peak. They allow drivers the ability to save money that may be needed in other facets of their lives. 

  • Relocating also affect insurance within the past year. Whether downsizing a home, moving for employment, etc. a person’s zip code can affect their premiums. Savvy consumers admit moving as a measure of reducing their out of pocket auto insurance costs.
  • A change in jobs allowed consumers to carpool or engage in shorter daily commutes. This decreases their chances of an accident, therefore reducing the occurrence of rate hikes and the payment of deductibles.
  • Credit repair is one aspect that is hard to achieve during times of a poor economy. Even with that being said, the Federal Trade Commission admits that consumers with better credit scores receive lower premiums. Therefore a number of American drivers have worked to increase their credit ratings in order to save money on the auto insurance. 


Additionally, when the economy is suffering, there other factors that affect the auto insurance industry as a whole. They are as follows:

  • Fewer claims. When the economy is doing well, they are able to earn and invest money via the payment of premiums. This makes them more susceptible to the payment of claims. As the economy takes a turn for the worse, claims become harder to obtain by consumers and they know this fact. Therefore, most consumers admit to the filing of fewer claims and expect fewer claims to be paid out when the economy is less than stellar. 
  • Decreased Demand. When the economy is low, there is no extra money for enhanced plans of coverage. Most drivers simply opt for the bare minimum that the law requires that they have.
  • Increased Regulation. The fallout of an economic crisis, more often than not, results in regulations being placed on all financial institutions. This leaves auto insurance providers riddled with heightened government oversight as well as rules that are quite complex. 


In Conclusion

Auto insurance is affected by the economy as are any financial obligations. Most consumers treat auto insurance as if it were an expendable luxury as opposed to a necessity. That is why when the economy is in a poor state, coverage begins to be downsized or consumers begin to opt for modes of transportation that do not require them to carry hefty policies or no policy at all.