With the national average for home insurance up 20% since 2022, a record 12% of homeowners are now choosing to forego insurance altogether, a practice known as “going bare.” It’s a trend that mirrors what occurred in the health insurance industry before the Affordable Care Act passed in 2009. Premiums were at an all-time high and a record number of Americans were uninsured. Both scenarios, in which rising premiums drive people to abandon insurance altogether, indicate a hard truth the insurance industry would sometimes like to ignore: The financial strain of rising premiums will eventually lead some to sacrifice even the most fundamental components of financial security.
This is not good news for the insurance industry (or for those opting out of insurance). The industry banks on people continuing to buy their standard policies even as prices go up. In many cases these policies — homeowners insurance, for example, which is required to get a mortgage, and auto insurance, required for operating a vehicle—are mandatory. And without them, many would be unable to buy homes or drive themselves to work. Having access to these policies and being able to afford them are, without question, fundamental to many people’s way of life. Being deeply entwined within our financial infrastructure has traditionally protected the insurance industry from losing customers, even as premiums have ballooned. Even price-sensitive buyers often feel they have no choice but to buy these policies. But this is starting to change.
Is insurance even worth it anymore?
Just as more and more homeowners are “going bare,” drivers too are less insured. Across the board, insurance, which is supposed to help people protect themselves from unexpected events or emergencies, is making it harder and harder for them to do so—leaving many vulnerable and less financially secure.
These trends beg the question: Is insurance even worth it anymore? It’s a question several of the people who took part in our recent qualitative research study are contending with. Of the 12 working–aged adults we spoke with, most had their own stories of rising insurance premiums. Some were even considering fundamental changes to their lives—selling their homes, moving to other states, downsizing to one car, or keeping their teenagers off the road (and off of their insurance policies)—should things continue to head in the same direction.
Insurance, for some, is beginning to seem more like a nice-to-have and less like a necessity.
We recently spoke to 12 working-aged adults across America about their finances, about insurance, and about how they are managing uncertainty about the future. Read their stories to discover what they had to say.
Below are five insights from our research that show how people’s feelings about insurance and the role it plays in their lives are changing.
1. Rising premiums and canceled policies are tarnishing trust, even among those who trust insurance companies the most
Among the people we spoke with, those in more comfortable financial situations tended to see insurance not just as valuable but often as indispensable. With more to protect and more disposable income, they are better positioned to absorb the costs of rising premiums and to see deductibles as annoying or inconvenient, but negligible in the larger scheme of things.
Still, even among this group, perceptions of insurance and insurance companies skewed negative, with more than one person describing insurance as “a necessary evil.”
These people want their insurance company to be a trusted partner and are insulted when they feel they’re being jerked around — when their premium triples over the course of one year or when they have to fight to get a basic claim paid. For even the biggest advocates of insurance, trust is beginning to wane.
I’ve been paying insurance faithfully for I don’t know how many years and I’ve had a few minor claims but for the most part I’ve paid it and barely used it and now my rates are skyrocketing?
2. When neither premiums nor deductibles are affordable, insurance starts to feel like a scam
One of the reasons people who are more financially vulnerable see insurance as less valuable is because when something does happen– a car accident, a break-in, damage to their home– it can be harder for them to cover the cost of a deductible. Imagine: You work hard (and may even struggle) to pay your premium every month, and then when something eventually does happen, before you can cash in on the insurance you have diligently been paying for month after month, year after year, you are forced to cough up even more money–and for some it’s an expense they simply cannot afford. It’s true, things may have been worse without insurance, but insurance still isn’t protecting them from financial hardship. This is many people’s experience with insurance, and as premiums rise, inflation goes up, and people are forced to make difficult choices, the value of insurance diminishes.
When you have insurance, you have this idea that it’s going to be there when you need it, but in my experience, it rarely covers what you think it will.
One woman we spoke with, now in her late twenties and thriving financially, described a car accident she was in while a college student in Austin, Texas. She was paying for college with a scholarship and was working three jobs to cover living expenses. She needed her car to commute to school and to her jobs and didn’t have the money to cover her deductible and get her car fixed. She ended up borrowing money from friends and family, an act which she found humiliating. It took her months to pay the money back. Even given her much improved financial state today, she still distrusts insurance companies. When we asked her the straightforward question: what is insurance, she told us:
A scam? Just kidding… but really, it does feel a little bit scammy. I just don’t think it protects you as much as it claims to or as much as you pay it to
3. For some who need it most, insurance is a luxury they can’t afford
For people who are comfortable financially, a damaged car can be annoying and a deductible inconvenient, but for those who may be struggling financially or just getting by, this kind of event can spell financial ruin, preventing people from getting to work and earning the money they need to pay their bills or forcing them into debt.
While the point of insurance is to promote financial stability and prevent catastrophic losses, when we asked people what made them feel financially secure, almost everyone listed things like a steady job, money in their bank or investment accounts, and predictable incomes. Those who did mention insurance tended to be those with all of the above, or, in other words, people already flourishing financially.
One woman we spoke with, an independent contractor and mother of four children, all under 17, recently lost her husband, who died unexpectedly without life insurance. She told us that when her husband lost his job a few months before his death, he also lost the small life insurance he had through his employer and, in an effort to cut back on expenses, decided to forgo health insurance for the family, which they had previously purchased through her husband’s job. Instead they joined a medical cost sharing program where they now contribute the smallest limit to have catastrophic coverage. In her view, the risks of not having health insurance are worth the short-term benefits of not having to pay the exorbitant premiums she’d now owe without an employer’s contribution. “I’ve done the cost-benefit analysis and it’s just not worth it,” she told us.
We’re pretty healthy, haven’t had any incidents… knock on wood, so we’re just doing medical cost sharing, but I lowered the coverage so now we only have catastrophic coverage.
While her story is about health and life insurance, we are now seeing people make similar calculations when it comes to home owners insurance, with some whose homes are already paid off deciding to roll the dice and hope for the best as they are priced out of home insurance.
4. Despite having little experience with insurance, young people still think negatively
We spoke with several people in their early to mid-twenties. Most were still on either their parent’s health or auto insurance policies (some were on both) and had limited and sometimes no experience with actually buying insurance for themselves. A few we spoke with, however, had purchased simple insurance products, like renters insurance, pet insurance, travel insurance or insurance for their phones and electronics. Most who had purchased these policies had positive things to report. They found them inexpensive enough to not be a major financial burden, and saw the small expense as worth the peace of mind, even if they were never going to use them. They also found the coverage to be relatively straightforward.
Despite these positive experiences, most still had negative general impressions of insurance, and expected buying more complex policies to be confusing and overwhelming. Their positive experiences with simple products weren’t necessarily extending to their general attitudes about insurance. The greater the risks covered, the more expensive and complex the policies become, and the less people trust them.
When I think about insurance I think really negatively. I’m not sure why. It seems really complicated and hard to figure out, and I’m someone who is good at figuring out things on my own.
5. Being there when people need it matters now more than ever
A recent LexisNexis Risk Solutions study analyzing a customer’s propensity for switching carriers after submitting a claim found that “when customers to speak to multiple adjusters, have to wait on responses or are forced to decipher confusing instructions on a website, customer satisfaction, and by extension loyalty, suffers.” Customers with negative or drawn out claims experiences were much more likely to seek out a new carrier. On the flip side, “loyalists,” or people who wanted to stay with their insurance carrier after a claim, were more likely to have had smooth claims experiences, aka a claims experience in which the claim was resolved quickly and only required speaking to one person.
These findings are supported by what we heard In our qualitative research. We spoke with multiple people whose claims experience deeply impacted their attitudes about insurance in general and about specific carriers.
We spoke with one woman, a successful entrepreneur and real-estate investor now in her fifties, who was kicked off her car insurance following an accident in her 20s. The experience has forever soured her on insurance and on her carrier at the time. She went on to buy a dozens investment properties and would’ve considered her original car insurance company for these properties had she had a positive claims experience all those years ago.
I was with my insurance company all these years paying my premiums on time, and the moment I get into an accident, they immediately drop me? It was not a good experience and I never went back to them for anything.
We spoke to another woman who recently spent hours on the phone fighting with her insurance company to cover a home repair due to a burst pipe. Her claim was eventually paid, but not without a fight that lasted weeks. This, after her policy had nearly doubled in price earlier that year without ever having submitted a previous claim. She’s now shopping around.
As premiums rise, how claims are handled is more important than ever. If people are going to be expected to pay more, they will expect to see more value.
Insurers who can better align the claims experience to customer expectations are not only delivering the quick and easy interactions customers seek, but they are also better positioning themselves to retain policyholders.
Tanner Sheehan, vice president and general manager, U.S. Claims, LexisNexis Risk Solutions
As life feels less predictable, insurance is beginning to feel less predictable, too. Will premiums continue to go up? By how much? Will insurance continue to cover the things it covered in the past? Will insurance actually come through when it’s needed? Will the promise of insurance begin to ring empty, not just for those living on the margins, but for anyone with a budget to balance and competing priorities? As we’ve already seen with something as essential as health insurance, people may start to seek not just alternative forms of protection and pooling risk, but new modes of living that anticipate and mitigate these risks in different ways. Will the perceived value of insurance continue to erode, or will the insurance industry rise to the occasion, and approach this shift as an opportunity and not a threat?