Everything costs too much these days, and car insurance is one of the worst offenders, with rate increases far outpacing inflation and even contributing to it in recent years. As a result nearly 30% of drivers have reduced their insurance coverage to save money, according to Bloomberg. Some are even dropping their car insurance entirely, despite the fact that doing so is illegal in every state except New Hampshire. This is having effects across the industry, some obvious, some not so much.
As insurance premiums rise through the stratosphere, one way to reduce them is to take a policy with a higher deductible, which is the amount you pay before insurance kicks in and covers the rest. This means that smaller repairs costing less than the deductible aren’t covered at all. Plenty of people are taking this option, contributing to a reduction in claims of 8.5% this past January through July compared to last year. Another factor is that even if repairs would be covered, filing a claim now would cost more in increased premiums later. This leads some drivers to simply not bother filing a claim, especially if their damaged vehicles are still drivable.
Some people are dropping comprehensive and collision insurance altogether, keeping only the legally required liability insurance. We’ve done this on our 20-year-old beater Dodge pickup, which at this point is probably worth about as much as a case of beer. But if I crash that truck, I’m left with a wrecked truck, not a repair or a payout for a totaled vehicle. The only exception is if someone else hits me, it’s their fault, and I can file a claim on their liability insurance.
It doesn’t even take something as serious as a crash to come up short. When a tree fell on that truck earlier this year, we had to pay for the windshield replacement out of pocket because we didn’t have the glass coverage that usually comes with comprehensive and collision insurance. I’m not complaining. We made our choice, and we paid the price, which was still less than the cost of full coverage. It was only about $200 to put a new windshield on the old beater. A windshield can cost over $1,000 on some cars, so your mileage will certainly vary.
Desperate times call for desperate measures
Another scary statistic for everyone on the road is that the number of insured cars on the road was down 4% in the second quarter of this year compared to the same period last year, indicating that more people are driving with no insurance at all. This is an enormous risk with both liability and legal consequences if you get caught. But as NPR reports, some people are so strapped for cash, they don’t feel they have a choice.
We’re only using Zoe’s first name because, for a short time after that, she became one of those people driving without insurance. “I fully didn’t pay my car insurance bill for about four weeks just because I couldn’t afford it,” Zoe says. “We have to eat every week. You have to pay the power and the water bill and the rent, and the rent keeps going higher, and milk’s $4 a gallon.”
Zoe was acutely aware of the risks she was taking if she were to get in a crash or pulled over. “I slow down at every single intersection, regardless of whether the light was green or not,” she recalls with a heavy sigh. “I’m careful at every turn. I get worried.”
I think many people these days can relate to Zoe’s story. It’s quite a juggling act, having to decide which bill doesn’t get paid this month and how long you can get away with it before the service gets cut off or you lose your home.
Consumers reducing or dropping insurance coverage is having many other trickle-down effects as well. For example, with fewer insurance claims, fewer vehicles are getting totaled, leaving salvage yards with less inventory to sell. The Bloomberg article goes into more detail on this and other effects the insurance situation is having, and is worth a read.
