Uninsured drivers and your premium: how UM costs are priced into rates

Uninsured drivers raise your premium mainly through one channel: the uninsured and underinsured motorist (UM/UIM) coverage on your own policy, which pays when an at-fault driver has no insurance or too little. Insurers set that coverage's price from their own UM/UIM claims, so when more injured drivers claim, or each claim costs more, the price goes up. The claim that uninsured drivers inflate every part of your bill is harder to prove, and the available data does not isolate it.

This article follows the money: where UM claims appear in industry data, what the coverage costs on average, why it costs different amounts in different states, and what the evidence cannot say.

The pricing channel: UM/UIM coverage

Uninsured motorist coverage pays an insured person who is injured, or whose car is damaged in some states, by an at-fault driver with no liability insurance. The National Association of Insurance Commissioners (NAIC) describes it as covering accidents with a motorist who has no bodily injury liability insurance, who is the owner or operator of a hit-and-run vehicle, or whose insurer denies coverage or becomes insolvent. Underinsured motorist coverage applies when the at-fault driver is insured but the limits cannot pay all the damages (NAIC 2022/2023 Auto Insurance Database Report). Each coverage has a bodily injury part and a property damage part.

On its uninsured motorists page, the NAIC states the transmission mechanism plainly: the costs of uninsured drivers are passed to insured drivers through uninsured motorist coverage, which covers a portion of those costs when an insured driver or passenger is injured or their vehicle is damaged in a collision. The page gives no premium amounts, which is typical: the mechanism is clear; the dollar effect is where the evidence gets thin.

The channel has a boundary worth noticing. Only people who carry UM/UIM pay its price. In some states the coverage is required, and in others an insurer must offer it and the buyer can reject it in writing. The NAIC database report says 23 states require UM coverage and 19 more require it unless the buyer rejects it in writing. If you reject it, you are not paying that charge, but you are also the one bearing the cost when an uninsured driver injures you. See rejecting uninsured motorist coverage in writing: when waivers fail for how rejections work.

Where UM claims appear in loss data

Insurers do not price "auto insurance" as one number. They price each coverage from that coverage's own claims, which is why the NAIC publishes separate tables by coverage. The NAIC database report includes UM/UIM tables that show, by state and for the nation:

• Earned premium and earned exposures. An exposure is roughly one insured car for one year.
• Incurred losses and incurred claims, split into bodily injury and property damage parts.
• Pure premium, the loss cost per exposure.
• Loss ratio, incurred losses divided by earned premium.
• Frequency and severity, how often claims occur and what each costs.

The report aggregates UM and UIM together, even though in most states UM can be bought alone. It also notes data limitations: Texas does not report earned exposure data, and in Massachusetts the uninsured motorist premium is collected together with bodily injury liability and medical payments, so the report shows a countrywide line without Texas and Massachusetts as well.

A national snapshot for 2022

The countrywide row of those tables gives a scale for the coverage in 2022, the latest year in the 2022/2023 report. These are the report's figures; the per-car average is calculated from them.

Read the numbers in sequence. About 380,000 bodily injury claims spread across 212.8 million exposures is roughly 0.18 claims per 100 cars a year. At an average cost near $42,500 a claim, that is a loss cost of about $76 per car for the injury part, plus about $5 for the property damage part. That is the $80.87 pure premium. Insurers then charge a premium high enough to cover the loss cost plus expenses and a margin, which is what the $89 average reflects.

For scale, the NAIC reports a 2023 national average expenditure on auto insurance of $1,281.92, which includes all coverages. The years differ, so this is only a rough sense of proportion, but $89 is under 7 percent of that. UM/UIM is a real line item and a modest one. The loss ratio is the number to watch: a 2022 loss ratio near 91 percent means that for each premium dollar, about 91 cents went to claims, leaving little for expenses. Insurers look at loss ratios when they file for rate changes, a process explained in loss ratios and rate filings: how insurers justify an increase. The movement from 74.85 percent in 2020 to 90.95 percent in 2022 is the type of change that supports a request for a higher UM rate.

What the numbers do and do not show about uninsured drivers

A rising loss ratio does not prove that more uninsured drivers are the cause. UM/UIM loss costs depend on three things.

1. How many claims occur. More uninsured at-fault drivers can raise claim frequency. So can more underinsured drivers, since UIM claims sit in the same aggregate. The Insurance Research Council (IRC) estimated that 15.4 percent of motorists were uninsured in 2023, up from 11.6 percent in 2019, per the Insurance Information Institute's table. Our companion article on How uninsured driver rates are estimated: IRC vs state counts covers the method.
2. What each claim costs. A UM bodily injury claim pays the injured person's medical bills and lost wages. If medical costs, wages and attorney involvement rise, severity rises whether or not more drivers are uninsured. The IRC has reported that the average injury claim payment rose from about $14,000 in 2017 to over $20,000 in 2022, and that the share of claimants with an attorney rose from roughly 40 percent to nearly 50 percent.
3. The legal environment. Rules on stacking, on what counts as an uninsured vehicle, and on who may claim change the size of every claim.

A New Mexico State University study for the state's Insurance Division put the point carefully in its discussion of the UM share of premium (Uninsured Motorists in New Mexico, covering data to about 2008). Claims data are the direct driver of the UM component of premium; claim frequency in New Mexico had dropped slightly while severity and total claims costs had increased; unresolved issues around stacking of policy limits and court efforts to broaden the definition of uninsured motorist coverage created uncertainty that could raise insurers' risk. They added that actuaries typically use multiple years of data, because a single year lacks credibility, and that premiums adjust with a lag. The study is old, but the structure holds: premium follows claim frequency, severity and law together, not the uninsured rate alone.

Why UM prices differ from state to state

If UM were priced only from the uninsured rate, prices would track the IRC's state table. They do not track it neatly, because the product itself differs by state. The NAIC's state notes in the database report give examples:

• Required or optional. The count of states requiring UM, requiring it unless rejected, or leaving it optional changes how many drivers carry it and therefore how many claims an insurer sees.
• Limits that must match liability. South Dakota's UM/UIM coverage is mandatory and must match the bodily injury limits up to $100,000/$300,000; above that it does not have to match.
• Minimums that differ from liability. Minnesota's minimum UM/UIM limits are $25,000/$50,000, lower than its $30,000/$60,000 bodily injury minimums.
• Property damage design. In California, UM property damage coverage is limited to $3,500 when bought without collision coverage; those with collision coverage buy a collision deductible waiver instead, which the report places under another liability line.
• Policy types that exclude it. New Jersey's basic and special automobile insurance policies have no UM requirement.
• Order of payment. In West Virginia, first-party coverage is secondary when underinsured motorist insurance is involved.

Add the rest of what drives any premium: local medical costs, litigation habits, how urban the state is, and the share of drivers who pick high limits. A $100,000 UM limit costs more than a $25,000 limit even in the same ZIP code, because the maximum loss is higher. The NAIC also cautions that comparing average premiums across states can mislead, because policyholders choose different limits and the product is not uniform. It notes that some states have a much higher uninsured motorist exposure than others, which is one reason averages differ.

The practical conclusion for a driver is that the price of UM on a quote is a result of limits, state rules and local claims, not a direct reading of how many uninsured cars are nearby.

The effect on liability and collision costs

The harder question is whether uninsured drivers raise what you pay for other coverages. The mechanisms are real but not well measured.

• Collision. When an insured driver's car is hit by an uninsured driver and the owner uses collision coverage, the insurer pays and normally tries to recover from the at-fault party through subrogation. Uninsured drivers often cannot pay, so recovery is smaller than when the at-fault driver is insured. In states where collision claims arise often from uninsured drivers, collision loss costs would be somewhat higher than otherwise. That is reasoning from how subrogation works, not a published estimate. See uninsured motorist property damage vs collision: which to use for how the two coverages interact.
• Liability. An uninsured at-fault driver has no policy to pay the victim, so the claim shifts from the at-fault driver's liability insurer, which does not exist, to the victim's UM coverage, if the victim has it. In that sense an uninsured driver does not raise liability claims at the insurer; the cost lands in UM instead. What is missing is the premium: an uninsured driver contributes nothing to the pool of premiums that funds losses, so the burden falls on the drivers who do buy coverage.
• Medical and no-fault coverages. Where personal injury protection or medical payments pays first regardless of fault, an uninsured at-fault driver adds to those claims too. Do no-fault states really cost more? Comparing premiums by system discusses how fault systems differ.

None of the sources reviewed for this article quantifies these effects across states. Press accounts attribute rising rates to uninsured drivers: an Insurance Business article describes a Mercury Insurance report saying insurers raise rates for all policyholders as uninsured driving rises. The article attributes the premium claim to Mercury, not to the IRC study it cites, and does not describe the method behind it. Treat such statements as an insurer's position rather than a measured result.

A worked example, with invented numbers

Say an insurer in State A sells UM/UIM to 500,000 cars at an average of $80 a year, collecting $40 million. In a typical year it pays $34 million in UM/UIM claims, a loss ratio of 85 percent. The pure premium is $68 a car.

Now suppose the uninsured share of at-fault injury drivers in State A rises over three years and UM claim frequency rises 25 percent, while severity rises 10 percent because of higher medical costs. Loss costs rise by a factor of 1.25 times 1.10, or 1.375. The same 500,000 cars now generate $46.75 million in claims. To hold the loss ratio at 85 percent, the insurer needs about $55 million in premium, or $110 a car, an increase of $30.

Of that $30 increase, how much is caused by uninsured drivers? Strictly, only the frequency part, the 25 percent, would be due to more uninsured and underinsured drivers if no other change occurred. Compute the effect of frequency alone: loss costs times 1.25 gives $42.5 million, or $100 a car, a $20 increase. The remaining $10 comes from severity. These numbers are invented to show the arithmetic. They illustrate why a statement like "uninsured drivers raised my rates" needs both a share of the increase and a time period before it is a fact.

What to do with this as a driver

1. Find the UM/UIM line on your declarations page. It shows the limits and the premium for the coverage. how to read your car insurance declarations page explains the layout.
2. Ask for a quote with and without it where your state allows. The price difference tells you what the coverage costs you. Compare it with the protection: your own UM/UIM limits are the amount the at-fault driver's missing insurance is replaced with.
3. Match UM/UIM to your liability limits where possible. Many drivers choose the same limits, since UM exists to put you in the position you would have been in had the other driver carried your liability limits.
4. Check the state rules. The coverage rules above vary, so use state car insurance requirements lookup and the state regulator.
5. Do not use a state's uninsured rate to predict your premium change. Local claim costs and the law matter as much.

Common questions

Do I pay for uninsured drivers if I decline UM coverage?

You do not pay the UM charge, but you carry the risk yourself. If an uninsured driver injures you, your medical bills fall on your health coverage, other first-party coverages, or you. Some states do not allow a rejection except in writing; see the article on waivers linked above.

Does a higher minimum liability limit reduce the UM share?

Not necessarily. Higher minimums can mean more of a victim's loss is paid by the at-fault driver's insurer, but minimums only apply to drivers who buy insurance. do higher state minimum limits raise everyone's rates? looks at the effect of raising minimums.

Is the UM price the same for every driver in a state?

No. Insurers file rates that vary by limit, location and rating factors. Within a state the filed relativities determine your price, and the insurer must justify them in a rate filing. how car insurance rates are calculated explains the process.

Can the state tell me how much of my premium is for UM?

Your declarations page lists the premium by coverage. The state insurance department can tell you how to look up filed rates. For statistics by state, the NAIC database report provides the UM/UIM tables.

Key takeaways

• Uninsured drivers affect your bill mainly through UM/UIM coverage, which insurers price from their own UM/UIM claims.
• In 2022 the NAIC's countrywide figures show roughly $89 of UM/UIM premium per insured car and a 91 percent loss ratio, up from about 75 percent in 2020.
• Claim frequency, claim severity and state law all move UM prices, so the uninsured rate alone does not predict them.
• UM prices differ by state because required limits, property damage rules and policy types differ.
• The effect on collision and liability costs is plausible through how subrogation works, but the sources reviewed here do not quantify it.