How did auto insurance costs change in 2020?

Around the start of the novel coronavirus pandemic, there was a lot of attention paid to how much people who suddenly weren't driving nearly as much as they used to still had to pay for auto insurance. As a consequence, most major insurers cut their premiums for drivers for a large percentage of 2020, but it's worth examining how much things really changed for Americans when it comes to their auto insurance rates.

In 2020, the average American paid premiums equal to $1,483 for a year of auto insurance, equal to $123.50 per month, according to an analysis of some 83 million rates from The Zebra. That number was down from the average in 2019 ($1,544, or $128.67 per month) and in fact is the lowest total seen since 2017. However, in comparison with where rates were as recently as 2015 ($1,280 annually, $106.67 monthly), it's still quite high.

Of course, that's just the national number. While most states saw premiums fall over the course of 2020, 17 states plus the District of Columbia experienced a year-over-year increase. Last year, Maine led all risers with an 18% average rate increase. Michigan's decrease was the largest in the nation, also at 18%. However, the latter change likely didn't come as a significant source of relief to Michiganders, as the Wolverine State is one of just three where the average rate is over $2,000 per year (along with Florida and Louisiana). In fact, drivers there have been paying auto insurance rates north of that lofty level for the entirety of the last decade.

Do your customers understand why auto insurance costs what it does?

A closer look
The high cost of auto coverage is likely a big reason why, according to CarInsurance.com, more than 2 in 5 drivers there are uninsured (a number that ranks fourth in the nation behind Florida, Mississippi and New Mexico). After all, Michigan residents pay more than 5.5% of their annual income just on their auto insurance premiums, and that number is the highest in the country.

However, other positive factors such as a relatively low cost of gas and number of traffic deaths, among others, mean that Michigan is only the 30th-worst state to be a resident driver. When considering the combination of insurance costs, traffic fatalities, road conditions (and extra ownership costs related to driving on them), traffic, gas prices, uninsured driver rates and the cost of auto repairs, California ranks worst for the second consecutive year, just ahead of Louisiana, Mississippi and New Jersey.

Meanwhile, despite the aforementioned high insurance increase, Maine remains one of the best places to drive in the nation, ranking third, behind only Utah and Minnesota. North Dakota and Massachusetts round out the top five.

The total cost of ownership
The question, then, is how much it costs to own a vehicle in total, for the entire year. Again, it varies significantly from one state to the next, but the average cost of ownership is nearly $5,264.60, or almost $439 per month, according to recent data from Move.org. Here, too, a relatively small number of states seem to swing the pendulum to the more expensive side. Michigan residents, for example, pay an average of roughly $9,304 annually just to be able to drive — no other state sees residents paying more than $6,800 per year. Idaho rounds out the top 10 at nearly $5,900 per year, on average (or $490 per month).

At the same time, the state with the lowest total cost of ownership is Alaska, where residents pay just under $3,600 per year. However, no one in the top 10 most affordable states for ownership sees residents paying more than an average of $4,640 ($387 per month).

Individual differences
Of course, the state where people live is just one factor influencing their insurance rates. Other things such as their specific ZIP code, credit score, the age of the vehicle, how large the deductible is, driving history and even the make and model have an impact. The fact is, as Nerdwallet notes, auto insurers have to consider the value of the vehicle rather heavily when considering premiums, as the repair or replacement costs associated with a minivan from the 1990s (for example) will be quite a bit lower than those for a brand-new luxury sedan.

One thing auto insurers don't want to do is create a situation in which people who look into the affordability of new coverage (or just renew an existing policy) to get sticker shock. For that reason, it's important to be as transparent as possible about why drivers are quoted the premiums they receive, and educate them about ways to reduce those costs, such as with bundling. That extra level of openness could go a long way toward ensuring a successful, long-lasting relationship.