About 1 in 6 Drivers Reduced or Canceled Coverage in Past Year

NAIC car insurance surveyThe National Association of Insurance Commissioners (NAIC) on Tuesday released survey results indicating that slightly more than half of respondents made personal financial changes in the past 12 months that could, either directly or indirectly, affect their access to cheap auto insurance premiums.

The survey was conducted by telephone in April and included just over 1,000 adults over the age of 18.

Possibly the most surprising of the survey’s findings was that 16 percent of respondents said they had “reduced or canceled their car insurance coverage for immediate financial relief.”

While diminishing coverage is an effective way of quickly cutting costs, the long-term impact of doing so could be higher premiums and even financial ruin, the association warns.

That’s because many states allow insurers to look at the coverage history of prospective policyholders, and those insurers generally don’t like to see periods of no coverage on a driver’s history. If there is such a period in one’s recent past, the insurer may decide to refuse to take the business altogether or to assess a higher premium.

The worst case scenario would be that a motorist cuts or eliminates protection for their auto and then causes a serious accident. At-fault drivers take the lion’s share of responsibility for damages after a crash, and, as the Ohio Department of Insurance says in a consumer guide, a family could end up paying the rest of their lives for one accident.

The NAIC survey also highlighted some other common changes being made.

Though it might not be for the purpose of saving on premiums, almost two-fifths of motorists are driving less. If this is because of a long-term change — like switching to a job with a significantly shorter commute — drivers may want to inquire about pay-as-you-drive programs that provide discounts for putting in fewer miles behind the wheel. If it is a temporary adjustment in habits, the consumer will see immediate savings from using less gas, but will likely not see any premium savings.

Another significant portion of drivers are switching to cheaper vehicles or simply getting rid of second vehicles. If a policyholder replaces his or her relatively new, more expensive vehicle for a car with a better crash history and lower average repair costs, it’s likely that comprehensive and collision prices will also be lower.

Similarly, a recent study from information-services firm Quality Planning said that its data showed consumers of older vehicles are assuming more risk by increasing their deductibles on completely eliminating comprehensive and collision policies so that they can enjoy reduced premiums.

“When determining where to cut spending now, it’s important to consider the big picture,” said Susan Voss, the Iowa insurance commissioner and president of the NAIC, regarding the results of the survey. “It’s important to understand what factors affect auto insurance rates so you don’t overlook opportunities to save or accidentally make a choice that provides only temporary savings.”

 

About John Pirro
John Pirro is a licensed fire and casualty insurance agent specializing in various aspects of the auto insurance industry. He worked in the auto body repair industry before taking a reporting position at Online Auto Insurance News.

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