Why is My Car Insurance So HIgh?

A new survey by Insure.com ranks auto insurance by state and makes a clear point about economic understanding.

This USA Today article explains that rates are higher in general where there are more accidents and more claims, so states with big cities tend to rank higher, but individual factors also play a large role.

The highest auto insurance rates are found in Louisiana.  “Louisiana's problem, according to Insure.com, is that folks there make big claims and sue each other a lot in front of friendly judges. Says the site: ‘A high portion of Louisiana drivers who are in accidents file bodily injury claims. Also, car accident lawsuits for less than $50,000 go before elected judges,’ who it says tend to side with consumers more than insurers.”  Are they really favoring consumers over insurers or are they merely spreading around the cost of these litigious citizens, making their state number one in premium costs for all citizens?  The answer is clear from the data.

In Michigan, the number-two state, “residents pay more in part due to ‘the state's guarantee of unlimited, lifetime personal injury protection benefits for treatment of injuries from a car accident.’  It says insurers pay the first $500,000 and medical expenses above that are paid by a Michigan Catastrophic Claims Association, which adds a fee to everyone's insurance premium ($175 per vehicle this year).”  Again the costs of a few are spread over the entire population.  A number of years ago the citizens of Michigan were given an opportunity by referendum to overturn this costly rule.  They overwhelmingly voted to keep it in place, but continue to complain about extremely high auto insurance premiums.  (Legislation is currently pending to modify this requirement.)

This reinforces the point that there is no magic money tree, no secret stash to absorb excessive legal damages or medical claims.  Despite what friendly judges might think, the insurance companies are not going to absorb those costs – not if they expect to stay in business.  Michigan’s state fund does not have it’s own source of income.  It must be financed by the high premiums everyone resents.  Whenever payments are handed out or future benefits promised, it is crucial to ask where the money is coming from.  Too few Americans do this and always seem surprised when they are required to pay the higher cost in the end.  Sometimes they pay through higher insurance premiums, sometimes through higher prices, unfortunately, in a few cases they pay by losing their jobs.  Understanding the economic process, keeps us from looking at short-term benefits as windfalls, knowing that it will be us (or our children) who will eventually pay the price.