When looking to get car insurance, determining what you need and different rates can be overwhelming. Austin Community College District (ACC) experts spoke with WalletHub on what you should know.
Written by: Sarabjeet Kaur Bedi, ACC Adjunct Professor
Why do car insurance rates (and even providers) vary so much from state to state?
High Insurance Rates are here to Stay.
You finally saved enough to buy your first car and you are so excited about the fact!! But hang on!! There is a critical piece still missing – Car Insurance. You cannot (and should not) hit the road until you have your car insurance. So, let’s understand this critical piece in a simple yet powerful way.
Insurance is a protection you buy for yourself and your assets, which in this case is your car. So, make sure your insurance company has enough money to cover you and losses as there are three important coverage that your company must be able to provide for – Coverage for others, coverage for you, and coverage for vehicle.
Coverage for others includes bodily injury (BI), which is the amount your insurance will pay for the medical in case of an accident. This can be done per-person or/and per-accident. In case of per-person, the amount you pay will go towards paying medical bills for an individual. However, this amount gets maxed-out to the total coverage, which is per-accident coverage, if the number of people in the vehicle is more. If there is any shortage, you pay that out of pocket.
Coverage for others also includes property damage (PD), which is the amount your insurance will cover for the damage to the property, in this case the car.
Coverage for you, can be done in multiple ways. Medical payments (MP) are per-person coverage, and $10,000/person is the most common limit. There is an option for Uninsured Motorist Bodily Injury/Underinsured Motorist Bodily Injury (UIMBI/UMBI), this is your self-insurance against cases where you are hit by someone with low or no insurance. The insurance company will pay for your bills upfront and will deal with the other party.
25/50/25 is a good ratio to begin with, where $25,000 per-person, $50,000 per-accident that’s the medical for others, and $25,000 property damage. A critical point to note is, that this ratio, varies state-to-state and city-to-city. The insurance premium and rates that you pay in one state differ from the other state and city.
Some states like Ohio, Vermont, Indiana, Idaho, and Maine have the cheapest insurance rates whereas, states like Florida and California are the two states with the highest insurance rates. Why are the rates so different between the states and what determines these rates?
Insurance rates depend on multiple factors, but State regulations play a significant role. State regulations like regulations on coverage requirements, rate approval processes, claim handling procedures, and underwriting guidelines are some important ones to mention. Sate specific laws like no-fault insurance, tort thresholds, and regulations around discounts and surcharges can also influence the insurance premiums.
State regulations can impact the driving conditions. Like the state of Texas, has a higher speed limit compared to its neighboring state Louisiana. This increases the speed of the vehicles in the state making driving riskier. Faster commute is susceptible to collision and multi-vehicle accidents. Hence the insurance company would charge higher rates in Texas compared to Louisiana.
Increasing operating cost is yet another reason for the Auto insurance companies to increase the premium rates. Companies like Geico have closed all California offices and are now available online only whereas Progressive has stopped advertising in the state. Higher operating costs, increased wages and commissions have increased the rates charged by the companies in certain states. Inflation is crawling up and this is evident in the increased insurance rates. Car repair is getting expensive and difficult due to shortage of auto parts. Insurance companies are finding it difficult to offer the same service at the lower rates.
In the past years the exodus to states like Texas, Florida, Arizona has increased the number of vehicles on the road. This is changing the driving pattern of the state. Texas commuters are used to high-speed driving with a smaller number of cars, which now has changed. This is making driving riskier than before; hence companies are increasing their insurance rates.
Some states have high fraudulent activities in connection with insurance payment. Stating wrong location is the most common fraud. Companies have started to charge 25% to 50% premium payments at the start of the payment cycle. States with high fraud rates experience higher rates as companies need to safeguard their interest.
Large cities like New York, San Francisco, Huston generally have expensive rates compared to the smaller ones due to traffic conditions. Cities generally have a higher number of vehicles, and the roads are not wide enough to accommodate the volume of traffic. Rush hour traffic and the urgency to reach work, makes driving riskier: hence higher insurance rate.
During COVID many consumers postponed their car purchases which changed post COVID. With the influx of new cars traffic got worse and insurance expensive. This has increased demand for insurance and the rates have gone up.
Auto Insurance Rates are raving up and where cars are kings, rate hike is here to stay in the foreseeable future. To maintain your monthly bills and budgets; maintain good credit/insurance score, shop and compare rates from various companies, reduce your coverage for the old cars, increase your deductibles. And most importantly DRIVE SAFE!!
Tags: ACC Experts, Car Insurance, WalletHub
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