Nearly 40 Percent of Americans Pay for Car Repairs Out-of-Pocket as Insurance Rates Spike: Survey

A police officer investigates the scene of a crash in Akron, Ohio, on Oct. 6, 2022. Phil Masturzo/Akron Beacon Journal via AP

Nearly four out of 10 insured drivers do not use their insurance coverage for reimbursing accident expenses, a survey by LendingTree has found.

“Among insured drivers in an accident or incident, 39 percent have bypassed their auto insurance for repairs,” the Aug. 19 report states.

When asked why, 59 percent of respondents said the damage was minimal, 44 percent said their deductible was higher than the cost, and 42 percent didn’t want their insurance to increase. Male drivers had a higher propensity to avoid insurance following an accident. Age-wise, younger consumers were found more likely to skip insurance.

Driver hesitancy to use insurance follows rising costs. In the first half of the year, car insurance rose by 15 percent, according to data from Insurify. Insurance costs surged despite industry experts predicting hikes to slow down this year.

The firm expects full-year hikes to be about 22 percent, with California, Missouri, and Minnesota projected to see the highest spikes of more than 50 percent.

Betsy Stella, vice president of carrier management and operations at Insurify, said insurance firms have raised premiums to account for changes in the frequency and severity of auto losses.

“The COVID-19 pandemic and following inflation, especially in the price of vehicle maintenance and repairs, along with changes in driving behaviors, led to new loss trends that increased the difficulty of rate setting,” she said.

Rob Bhatt, auto insurance expert at LendingTree, said that drivers would be better off, at the moment, paying for minor repairs out of their own pockets in the case of an accident and that insurance should ideally be used only for big accidents.

This is especially so when the accident was caused by the individual, he said.

“A claim for an at-fault accident almost always increases your rates,” he said.

Almost a quarter of people who filed for claims following an accident said they regretted the decision as there was an increase in insurance rates post-claim. Another reason was a fall in vehicle values.

One in four individuals who filed claims saw their annual rates jump by at least 25 percent.

“Your rates will eventually come down if you avoid claims for three to five years, depending on your insurance company. But you’re going to feel a financial squeeze until then,” Bhatt said.

Almost three in five respondents who paid accident costs out of pocket said they did not report the incident to their insurers. Bhatt suggested such people may be at risk of breaking the law.

“If you’re not getting any money from your insurance company for an accident, you don’t need to tell them about it. That said, you still need to follow your state’s accident reporting laws, whether you file an insurance claim or not,” he said.

Premium Hikes After an Accident

According to credit reporting company Experian, non-at-fault drivers typically do not see an increase in insurance rates after accidents. However, there is no guarantee that insurance firms follow this policy in all circumstances.

If the driver has previously been involved in accidents, the firm may categorize them risky, raising premiums even when the individual is not at fault, Experian noted.

Similarly, if the at-fault driver’s policy does not have enough coverage, the other driver may have to tap into their uninsured or underinsured motorist coverage. This can lead to the insurance company raising policy rates even when the person isn’t responsible for the accident.

Insurance firms typically consider a person’s driving record from the past three to five years when calculating policy rates. As such, an accident today could result in higher insurance costs for the next several years.

Customer trust in their insurer is a key factor in determining how well they handle premium hikes, according to a recent survey by J.D. Power. If customers trust their insurers, the rate hikes may be largely tolerated, it said.

“Even though high premiums negatively affect customer satisfaction, those negative influences can be offset by high levels of trust that insurers will come through when they are needed,” said Breanne Armstrong, director of global insurance intelligence at J.D. Power.

She pointed out that auto insurers currently have to deal with rising operational costs.

“With repair costs still rising—and with more than 20 percent of vehicles involved in collisions now considered total write-offs—insurers are still losing money, despite passing along huge price increases to their customers,” she said.