Monday, April 27, 2015
Most American drivers know that information like your driving history and age plays a role in how much you pay for auto insurance.
But some may be surprised to learn that geography is just as important when it comes to pricing car insurance policies.
A recent Quadrant Information Services / insuranceQuotes.com study examined the average cost of auto insurance premiums in all 50 states.
For instance, the average annual cost of an auto policy in Michigan is a staggering 136 percent more expensive than the national average.
Meanwhile, drivers in North Carolina are paying -- on average -- 41 percent less than the national average for car insurance.
But huge premium swings can happen on a much smaller scale. The study also examined how each county's rate compared to its state average and found that the price of insurance can swing dramatically from county to county.
Auto insurance premium swings by state
According to the National Association of Insurance Commissioners (NAIC), the average annual cost of car insurance nationwide was $815 in 2012 -- the most recent data available.
But when it comes to examining the average cost of car insurance on a smaller scale, not all states are created equal.
According to the study, the following five states, on average, have the most expensive annual auto insurance rates in the country (by percentage above the national average):
- Michigan: +136 percent.
- Rhode Island: +45 percent.
- New York: +42 percent.
- Delaware: +41 percent.
- Louisiana: +33 percent.
- North Carolina: -41 percent.
- Idaho: -37 percent.
- Ohio: -33 percent.
- Maine: -33 percent.
- Wisconsin: -28 percent.
For example, states with a higher cost of living will also most likely have a higher cost for things like medical care and auto mechanics – and insurers will price their policies accordingly.
In states like Idaho, Ohio and North Carolina, an abundance of rural areas helps keep insurance costs lower due to lower crime rates and fewer accidents.
Meanwhile, a state like Louisiana may be largely rural, but it also has natural disasters to contend with. According to Barry, natural disasters like hurricanes can cause damage to vehicles (for example through flooding, or falling trees.)
After a hurricane, the number of comprehensive claims in a single year will shoot up, the cost of which gets passed along through higher premiums to the general insured population.
"This may also help explain New York (+42 percent) and Connecticut (+25 percent)," Barry says. "(Superstorm) Sandy wasn't all that long ago, and the claims made on flooded vehicles could still be affecting prices today."
Why is Michigan so expensive?
The most obvious outlier here is Michigan, where drivers pay substantially more for auto insurance than any other state in the country.According to Lori Conarton, communications director for the Insurance Institute of Michigan, this is neither complicated nor surprising.
Michigan is a no-fault auto insurance state, which means each insurance company compensates its own policyholders for the cost of injuries no matter who's at fault in the accident. This benefit is known as personal injury protection (PIP).
What's wholly unique about Michigan, however, is that the state provides unlimited lifetime coverage for any medical expenses that result from auto accidents. It's an impressive benefit, but it also makes insurance very expensive.
"No other state in the country provides lifetime medical benefits," Conarton says.
The average personal injury claim in Michigan increased from $20,000 in 2003 to $46,000 in 2013.
According to Conarton, this is a result of continually increasing health care costs as well as longer life expectancies.
"Since younger people are injured more frequently in auto accidents than older drivers, the cost of covering a lifetime of medical expenses could easily climb into the millions-of-dollars range," Conarton says.
When it comes to North Carolina, the obvious outlier at the bottom of this list, there are a few reasons why its premiums are so low:
Auto insurance premium swings by county
It’s not just state rates that matter – your county can also have a huge impact on what you pay for car insurance.For instance, Kings County in New York is 73 percent more expensive than the state average, while Chemung County is 51 percent cheaper than the state average.
So how can such different county rates occur in the same state?
Eli Lehrer, president of the nonprofit research group, The R Street Institute, attributes these swings to “equally drastic differences in traffic conditions and culture within the same state. When you have more cars on the road, you have a greater likelihood of accidents and insurance claims. That's why really crowded counties coming in so high."
In New York, for example, Lehrer points out that Kings County (i.e., Brooklyn) is a place with very high traffic density and a "culture known for not-so-polite driving.
Chemung County, on the other hand, is a small, lightly populated county with "a very polite culture," low population density and few traffic lights.
"The same seems to hold true in all of the other states from this study," Lehrer says.
For example, Clark County, Nevada, is 11 percent more expensive than the state average, while Humboldt County comes in 34 percent cheaper.
"All you need to know is that Clark County contains Las Vegas and its immediate suburbs, while Humboldt County is a sleepy locale of about 17,000 people," Lehrer says.
The same reasoning holds true in Michigan. According to Conarton, Wayne County (+45 percent) contains Detroit and its surrounding metro region, while Marquette County (-27 percent) is a smaller, less-crowded rural suburb.
"More than half of all auto theft in this state occurs in Wayne County," Conarton says.
Damn glad I live in North Carolina on this one.
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