Cost Trends and Affordability of Automobile Insurance in the U.S.

We consider the affordability of auto insurance in light of recent increases in its cost. We show that increases in the cost of insurance are correlated with increases in the cost of losses, not with changes in insurer profits. We review the existing literature on the affordability of auto insurance and describe the inherent difficulties of evaluating affordability. We also highlight important limitations in the assumptions and methodologies used in past affordability studies. Finally, we conclude that rate regulation is not an appropriate tool for addressing the affordability of auto insurance.