Signs Of Distress, In The Subprime End Of The Auto Insurance Pool

There are signs of real economic distress among auto insurance shoppers with subprime credit, including a striking number from the latest quarterly consumer survey of insurance shoppers from the TransUnion credit bureau:

Nearly 15% of respondents in TransUnion’s second-quarter survey said they allowed their auto insurance to lapse, or owned or used a car without valid insurance, at some point in the previous six months.

Since you can’t legally drive in so many states without proof of auto insurance, it’s no trivial matter to be without it.

“The impact inflation is having across the entire wallet is, it’s getting to the point where some consumer wallets are so constrained,” says Michelle Jackson, senior director, personal property and casualty insurance, for Chicago-based TransUnion.

“They’ve got mortgage or rent; loans to pay off; the cost of goods — groceries, gas. They have to make a decision, whether to pay insurance, or let it lapse,” she says in a phone interview.

In contrast, most new-car buyers have low-risk, prime credit histories. In the prime space, consumers are complaining about how long they had to wait for their new car or truck, how much they paid over sticker price, or the fact that they couldn’t get the color they wanted.

Meanwhile, nearly 30% of those uninsured shoppers in the TransUnion survey cited “inability to pay” as the primary reason.

TransUnion says the share of uninsured shoppers rose from the first quarter of 2022 to the fourth quarter, and remained at an elevated level, in the latest TransUnion Insurance Personal Lines Trends and Perspectives Report.

Shopping behavior analyzed in the TransUnion report also shows insurance shopping is up. That’s partly because consumers are searching for better rates out of necessity, and partly because technology makes it easy to shop for insurance quotes online, Jackson says.

“Consumers are doing exactly what the industry has trained them to do — to be price-sensitive, and they’re doing just that,” she said.

However, shopping data also suggests consumers aren’t necessarily finding those lower rates. For example, the average number of sites online insurance shoppers visit is on the rise.

Another interesting outcome of the survey was that an increasing share of insurance shoppers say they are getting quotes from insurance agents. That’s counter to the long-term trend towards self-serve, online shopping.

It could imply consumers are deciding they need help finding cheaper insurance they haven’t been able to find on their own, Jackson said.

“There’s a pretty sizable jump across all generations, on quoting via agents,” she said, including younger consumers who are typically more online-oriented. The bad news is, “they’re not finding cheaper prices.”