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Average Cost of Car Insurance Declines-NAIC

The National Association of Insurance Commissioners (NAIC) has posted its 2006/2007 Auto Insurance Database Report, which indicates an average decline in auto insurance rates nationwide. According to the report, the national average rate for car insurance coverage fell by close to three percent in 2007 from the previous year's average. Findings from the NAIC study were published in a 247 page document. The study tracked the average auto insurance premiums in all 50 states plus the District of Columbia, which had the highest average car insurance premium nationwide in 2007, a position it has frequently held through the years since the NAIC began keeping track of this data.

The Washington, D.C. area did see a two percent decrease in average auto insurance policy premiums in 2007, which was at least a small bit of good news for D.C. area drivers. Average rates for the District of Columbia checked in at $1139.82. The most expensive state in terms of average auto insurance rates was New Jersey, which was second behind Washington, D.C. with average rates for auto insurance of $1103.53 in 2007, a four percent drop from the previous year. The other states rounding out the top five in terms of average rates were Louisiana, New York, and Florida [1]. Two other states along with the top five all averaged over $1000 per year for their respective in-state car insurance premiums.

The least expensive state in terms of average cost of car insurance was North Dakota, which actually saw its rates drop as well by around three percent to $511.79. The rest of the five least expensive states to insure a car in 2007 were Iowa, South Dakota, Nebraska and Idaho, according to the NAIC study [1]. Clearly, there is a strong correlation between high population density and traffic congestion, and rate of insurance claims which leads to the wide price disparities between the cheapest states and the most expensive ones to own a car in. These are some of the factors the NAIC points to when it stresses that it is very hard to really compare states in an apples-to-apples kind of way.

Car Insurance Rates Fall Across the Country

Nationwide rates fell by an average of over $21 in 2007 to under $800 a year. The lower rates can be attributed to any number of factors, from increased competition among the different insurance companies to wider selection for consumers owing to the increased import of the online auto insurance market. Whatever the reason, the news is welcome for consumers eager to save money wherever they can. It remains to be seen how numbers from these past few years will come back, but it is clear that reductions in rates are possible and it is important for car owners to be diligent in finding the best values they can on their coverage, and not just sit back and take price increases from their providers.

The state of Ohio was one which saw particularly good news in the NAIC report. Ohio has enjoyed three consecutive years of declines in average auto insurance policy premiums, according to NAIC figures. The state of Ohio is now the eleventh-most affordable in terms of average car insurance cost [2]. What is even more remarkable is the fact that Ohio's average car insurance premium is lower than it was seven years ago, according to data from the Ohio Insurance Institute (OII). The average cost of a car policy in Ohio was $642 in 2002, but OII estimates place current rates at around $633 based on the 2006/2007 NAIC report and the OII's own 2008 rate change report. The Ohio Department of Insurance does expect a slight rate increase for 2010 according to its current projections [3], but with rates nominally sitting at 2002 levels, that's not the worst news state consumers could possibly hear.

Overview of the NAIC and its Reporting Conventions

The National Association of Insurance Commissioners is an organization designed to serve the interests of insurance consumers all across the United States. Its stated mission is to "assist state insurance regulators, individually and collectively, in serving the public interest and achieving [its] fundamental insurance regulatory goals in a responsive, efficient and cost effective manner" [4]. The 2006/2007 report, like all of its NAIC predecessors, contains detailed state-by-state car insurance data meant to provide the pertinent information needed for insurance regulators, consumers and policymakers to analyze and respond to changes in the market both nationwide and in individual states [5].

For each individual state, average premiums and expenditures, pure premiums, loss ratios, and claim frequency and severity are all calculated and included in the NAIC report. Insurance types included in the data collected include bodily injury and property damage liability coverage (including no-fault coverage which is mandated in some states), uninsured/underinsured motorist coverage, medical coverage, and collision and comprehensive coverage [5]. The NAIC includes all this information to present a fuller picture of each state's insurance market, giving providers, regulators and policy holders a detailed snapshot of the local industry.

The NAIC is also quick to point out that each state has different requirements and laws on the books dealing with insurance regulations, which can greatly influence price disparity between states. Factors identified by the NAIC as being pertinent in discussing differences between states include: state insurance underwriting costs; characteristics of driving locations such as traffic volume, theft rate and accident rate; auto repair costs; and each state's own laws regarding insurance. The group understandable acknowledges that the presence of these and other mitigating factors can make a true state-by-state comparison very difficult [5]. With this being said, it can still be quite instructive to take a close look at NAIC figures and see how different states compare against one another. Auto insurance costs can be one important component of the cost of living that sometimes get overlooked when people make comparisons between living in one state or another. The data provided by the NAIC is useful even to consumers in this context, even as it continues to have great value to regulators and insurance providers alike.

Looking Ahead in the Car Insurance Industry

When a report such as the 2006/2007 Auto Insurance Database Report comes out, the tendency for a lot of people is to imagine what kind of news the next report will bring. Since these reports are a look at data from a few years back, their release is invariably accompanied by a feeling of curiosity about what might happen next. The insurance industry is facing some serious challenges, from inside and outside the industry. The possibility of federal regulation looms; international insurance companies are itching to increase their presence on U.S. soil; and the increasing popularity of the online market is making it more and more critical for providers to operate at maximum efficiency in order to survive. The NAIC report on average car insurance costs is certainly welcome news to the industry, but keeping auto coverage rates low is only one piece of the puzzle for providers hoping to thrive in today's economy.

[1] http://www.property-casualty.com/News/2009/12/Pages/Auto-Insurance-Premiums-Drop-Nationwide.aspx Retrieved 2009-12-07.
[2] http://www.prnewswire.com/news-releases/decline-in-average-auto-insurance-premiums-78669607.html Retrieved 2009-12-07.
[3] http://www.insurancejournal.com/news/midwest/2009/12/04/105753.htm Retrieved 2009-12-07.
[4] http://www.naic.org/documents/consumer_guide_auto.pdf Retrieved 2009-12-07.
[5] http://www.naic.org/Releases/2009_docs/2006 _2007_auto_insurance_report.htm Retrieved 2009-12-07.

 

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