III - Auto Insurance

FACTS AND STATISTICS

Auto Insurance

The average cost of automobile insurance declined by 1.3 percent in 2005, according to a September 2007 report from the National Association of Insurance Commissioners (NAIC). New Jersey had the highest average expenditure ($1,184), followed by the District of Columbia ($1,182), New York ($1,122), Massachusetts ($1,113) and Louisiana ($1,076).

AVERAGE EXPENDITURES FOR AUTO INSURANCE,
UNITED STATES, 1996-2005

Year	Average expenditure	Percent change	Year	Average expenditure	Percent change
1996	$691	3.4%	2001	$726	5.2%
1997	705	2.0	2002	781	7.6
1998	703	-0.3	2003	824	5.5
1999	685	-2.6	2004	840	1.9
2000	690	0.7	2005	829	-1.3
Source: © 2007 National Association of Insurance Commissioners.

77 percent of insured drivers purchase comprehensive coverage in addition to liability insurance, and 72 percent buy collision coverage, according to NAIC data.

TOP TEN MOST EXPENSIVE AND LEAST EXPENSIVE STATES
FOR AUTOMOBILE INSURANCE, 2005 (1)

Rank	Most expensive states	Average expenditure	Rank	Least expensive states	Average expenditure
1	New Jersey	$1,184	1	North Dakota	$554
2	D.C.	1,182	2	Iowa	555
3	New York	1,122	3	South Dakota	565
4	Massachusetts	1,113	4	Idaho	583
5	Louisiana	1,076	5	Kansas	590
6	Florida	1,063	6	North Carolina	602
7	Rhode Island	1,059	7	Wisconsin	615
8	Delaware	1,028	8	Nebraska	621
9	Connecticut	991	9	Wyoming	639
10	Nevada	983	10	Maine	644
(1) Based on average automobile insurance expenditures. Source: © 2007 National Association of Insurance Commissioners.

AUTO INSURANCE EXPENDITURES, BY STATE

The table on the following pages shows estimated average expenditures for private passenger automobile insurance by state for 2001 to 2005, providing approximate measures of the relative cost of automobile insurance to consumers in each state. To calculate average expenditures the National Association of Insurance Commissioners (NAIC) assumes that all insured vehicles carry liability coverage but not necessarily collision or comprehensive coverage. The average expenditure measures what consumers actually spend for insurance on each vehicle. It does not equal the sum of liability, collision and comprehensive expenditures because not all policyholders purchase all three coverages.

Expenditures are affected by the coverages purchased as well as other factors. In states where the economy is healthy, people are more likely to purchase new cars. Since new car owners are more likely to purchase physical damage coverages, these states will have a higher average expenditure. The NAIC notes that urban population, traffic density and per capita income have a significant impact on premiums. The latest report shows that high premium states tend also to be highly urban, with higher wage and price levels and greater traffic density. Tort liability and other auto laws, labor costs, liability coverage requirements, theft rates and other factors can also affect auto insurance prices.

AVERAGE EXPENDITURES FOR AUTO INSURANCE BY STATE, 2004-2005

	2005					2004
State	Liability	Collision	Compre- hensive	Average expenditure	Rank (1)	Average expenditure	Rank (1)	Average expenditure percent change 2004-2005
Alabama	$367	$316	$134	$678	37	$677	39	0.1%
Alaska	596	390	165	962	11	974	11	-1.2
Arizona	511	310	242	926	14	931	14	-0.5
Arkansas	391	297	165	693	34	708	32	-2.0
California (2)	487	365	117	845	18	847	17	-0.3
Colorado	471	304	198	827	21	850	16	-2.6
Connecticut	626	343	127	991	9	991	9	0.0
Delaware	713	294	113	1,028	8	1,022	8	0.6
D.C.	627	446	270	1,182	2	1,185	2	-0.2
Florida	757	280	111	1,063	6	1,062	6	0.1
Georgia	420	372	168	784	24	779	24	0.6
Hawaii	547	298	114	843	19	817	22	3.1
Idaho	339	236	133	583	48	590	48	-1.2
Illinois	410	300	121	743	28	760	26	-2.3
Indiana	372	266	120	657	41	671	40	-2.0
Iowa	290	205	169	555	50	580	50	-4.3
Kansas	301	244	205	590	47	603	46	-2.2
Kentucky	489	272	137	750	26	758	27	-1.1
Louisiana	665	358	208	1,076	5	1,062	5	1.3
Maine	368	273	111	644	42	650	42	-0.9
Maryland	556	331	149	945	12	947	12	-0.3
Massachusetts	724	339	139	1,113	4	1,113	4	0.0
Michigan	487	436	166	931	13	980	10	-5.1
Minnesota	460	237	190	791	23	829	21	-4.6
Mississippi	419	304	171	745	27	749	29	-0.6
Missouri	381	271	152	685	35	702	33	-2.4
Montana	409	250	207	685	36	683	37	0.3
Nebraska	337	226	208	621	44	637	43	-2.6
Nevada	636	336	146	983	10	939	13	4.7
New Hampshire	431	305	114	792	22	798	23	-0.8
New Jersey	751	403	183	1,184	1	1221	1	-3.1
New Mexico	449	293	167	727	30	728	30	0.0
New York	765	338	159	1,122	3	1,172	3	-4.2
North Carolina	336	269	125	602	46	597	47	0.9
North Dakota	259	209	254	554	51	562	51	-1.4
Ohio	390	255	110	669	39	680	38	-1.6
Oklahoma	395	277	174	678	38	690	36	-1.8
Oregon	484	235	110	737	29	753	28	-2.2
Pennsylvania	508	316	131	849	16	843	19	0.8
Rhode Island	714	380	130	1,059	7	1,034	7	2.4
South Carolina	471	253	151	753	25	763	25	-1.4
South Dakota	298	211	214	565	49	587	49	-3.7
Tennessee	363	298	126	659	40	666	41	-1.1
Texas (3)	476	315	155	845	17	847	18	-0.2
Utah	427	270	122	706	31	722	31	-2.3
Vermont	368	306	134	699	32	693	35	0.9
Virginia	398	271	127	698	33	702	34	-0.6
Washington	541	265	132	840	20	839	20	0.2
West Virginia	532	303	193	857	15	875	15	-2.1
Wisconsin	339	215	133	615	45	636	44	-3.2
Wyoming	336	263	224	639	43	629	45	1.6
United States	$496	$309	$143	$829		$840		-1.3%
(1) Ranked by average expenditure. (2) Preliminary. (3) Due to the exclusion of county mutuals, which had 44 percent of the market in 2005, Texas results are not comparable with results from other states. Note: Average expenditure=Total written premium/liability car years. A car-year is equal to 365 days of insured coverage for a single vehicle. The NAIC does not rank state average expenditures and does not endorse any conclusion drawn from these data. Source: © 2007 National Association of Insurance Commissioners.

AVERAGE EXPENDITURES FOR AUTO INSURANCE BY STATE, 2001-2003

	Average expenditure (1)
State	2003	2002	2001
Alabama	$657	$627	$605
Alaska	938	884	826
Arizona	921	887	822
Arkansas	698	672	621
California (2)	837	778	723
Colorado	923	921	808
Connecticut	988	970	912
Delaware	977	900	851
D.C.	1,135	1,044	1,012
Florida	1,018	934	850
Georgia	759	739	703
Hawaii	776	739	705
Idaho	586	563	523
Illinois	762	729	683
Indiana	671	648	615
Iowa	581	548	513
Kansas	611	587	556
Kentucky	739	688	645
Louisiana	1,015	928	839
Maine	633	587	546
Maryland	893	840	784
Massachusetts	1,052	984	936
Michigan	950	887	735
Minnesota	837	801	735
Mississippi	710	681	638
Missouri	702	669	634
Montana	675	628	572
Nebraska	624	590	554
Nevada	914	896	851
New Hampshire	779	733	686
New Jersey	1,193	1,125	1,028
New Mexico	732	706	662
New York	1,168	1,100	1,015
North Carolina	605	588	565
North Dakota	537	505	498
Ohio	672	642	614
Oklahoma	689	654	610
Oregon	736	682	643
Pennsylvania	813	777	726
Rhode Island	997	939	880
South Carolina	745	703	636
South Dakota	564	542	510
Tennessee	650	632	611
Texas (3)	837	791	735
Utah	733	703	640
Vermont	683	650	603
Virginia	658	626	610
Washington	825	791	750
West Virginia	844	778	707
Wisconsin	621	611	573
Wyoming	618	585	528
United States	$824	$781	$726
(1) Average expenditure=Total written premium/liability car years. A car-year is equal to 365 days of insured coverage for a single vehicle. (2) Preliminary. (3) Due to the exclusion of county mutuals, which had 44 percent of the market in 2005, Texas results are not comparable with results from other states. Source: © 2007 National Association of Insurance Commissioners.

TOP FIVE MOST EXPENSIVE AND LEAST EXPENSIVE CITIES FOR AUTOMOBILE INSURANCE, 2007 (1)

Rank	Most expensive cities	Average annual auto premiums	Rank	Least expensive cities	Average annual auto premiums
1	Detroit, MI	$5,072	1	Eau Claire, WI	$869
2	Philadelphia, PA	3,779	2	Norfolk, VA	954
3	Newark, NJ	3,381	3	Raleigh, NC	966
4	Los Angeles, CA	3,027	4	Bismarck, ND	989
5	Hempstead, NY	2,764	5	Burlington, VT	1,001
(1) As of June 2007. Assumes $100,000/$300,000/$50,000 liability limits, collision and comprehensive with $500 deductibles, and $100,000/$300,000 uninsured coverage. Source: Runzheimer International.

Auto insurance is more expensive in urban areas because of the higher density of traffic, increased likelihood of theft and vandalism, and greater incidence of fraud.

LEADING WRITERS OF PRIVATE PASSENGER AUTO INSURANCE
BY DIRECT PREMIUMS WRITTEN, 2006

($000)

Rank	Company/Group	Direct premiums written (1)	Market share
1	State Farm Mutual Group	$29,582,026	18.0%
2	Allstate Insurance Co. Group	18,293,861	11.1
3	Progressive Casualty Group	12,077,096	7.3
4	National Indemnity Co. Group (Berkshire Hathaway)	11,105,001	6.7
5	Farmers Insurance Group	8,109,760	4.9
6	Nationwide Group	7,489,998	4.5
7	United Services Automobile Association Group	5,964,245	3.6
8	American International Group	5,002,978	3.0
9	Liberty Mutual Group	4,251,008	2.6
10	American Family Insurance Group	3,536,914	2.1
(1) Before reinsurance transactions, excluding state funds. Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.

WHERE THE PREMIUM DOLLAR GOES,
PRIVATE PASSENGER AUTO INSURANCE, 2006

PREMIUMS EARNED:			$100
CLAIMS:
Payments to injured persons:
Medical	$9
Wage loss and other economic payments	2
Pain and suffering and other noneconomic awards	5
Lawyers’ fees	11
Costs of settling claims	1
Subtotal		$28

Payments for damage to cars (1):
Property damage liability	$15
Collision claims	16
Comprehensive claims	7
Costs of settling claims	1
Subtotal		$39
Total claims		$67

EXPENSES:
Commissions and other selling expenses	$17
General expenses (costs of company operations)	6
State premium taxes, licenses and fees	2
Dividends to policyholders	1
Total expenses		$26

Claims and expense total			$93

BOTTOM LINE:
Investment gain (2)			$7
Pretax income ($100 - $93 + $7)			14
Tax			-5
Income after taxes			$9
(1) Includes theft and damage to other property, e.g., road signs. (2) Includes interest, dividends, and realized capital gains. Source: Insurance Information Institute estimate based on data from ISO; National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.; Insurance Research Council; A.M. Best Company, Inc.

In 2006 claims accounted for $67 of every $100 earned in private passenger auto insurance premiums in the United States.
Lawyers’ fees accounted for $11 out of every $100 in premiums. Half of the fees went to plaintiffs’ attorneys and the remainder to defendants’ attorneys.
Theft accounted for about 25 percent of the dollars that go to pay comprehensive claims, or 2 percent of premiums earned for private passenger auto insurance.

PRIVATE PASSENGER AUTO INSURANCE LOSSES,
1997-2006 (1)

	Liability
	Bodily injury (2)		Property damage (3)
Year	Claim frequency (4)	Claim severity (5)	Claim frequency (4)	Claim severity (5)
1997	1.31	$9,517	4.03	$2,183
1998	1.26	9,437	3.97	2,240
1999	1.23	9,646	4.00	2,294
2000	1.20	9,807	3.98	2,393
2001	1.17	10,032	3.98	2,461
2002	1.17	10,289	3.94	2,539
2003	1.17	10,510	3.89	2,590
2004	1.15	10,915	3.80	2,612
2005	1.11	11,213	3.70	2,684
2006	1.05	11,847	3.52	2,801

		Physical damage
	Collision (6)		Comprehensive (6), (7)
Year	Claim frequency (4)	Claim severity (5)	Claim frequency (4)	Claim severity (5)
1997	5.44	$2,234	2.68	$1,152
1998	5.39	2,273	2.93	1,078
1999	5.73	2,352	2.80	1,116
2000	5.61	2,480	2.89	1,125
2001	5.53	2,525	3.11	1,152
2002	5.42	2,551	2.90	1,210
2003	5.35	2,633	2.73	1,229
2004	5.19	2,683	2.43	1,293
2005	5.17	2,733	2.29	1,356
2006	5.03	2,790	2.28	1,444
(1) For all limits combined. Includes all loss adjustment expenses. (2) Excludes Massachusetts and most states with no-fault automobile insurance laws. (3) Excludes Massachusetts, Michigan and New Jersey. (4) Claim frequency is claims per 100 earned car years. A car year is equal to 365 days of insured coverage for a single vehicle. (5) Claim severity is the size of the loss, measured by the average amount paid for each claim. (6) Based on coverage with a $500 deductible (7) Excludes wind and water losses. Source: ISO.

Recent increases in the size of average bodily injury liability claims reflect higher hospitalization, pharmaceutical and legal costs.
Between 1997 and 2006, claim frequency fell 19.8 percent for bodily injury liability claims and 12.7 percent for property damage liability claims.
Claim severity for liability coverages increased steadily between 1997 and 2006, rising 24.5 percent for bodily injury claims and 28.3 percent for property damage claims.
In physical damage coverages there were similar trends in claim frequency and severity.
Claim frequency fell 7.5 percent for collision coverage and 14 percent for comprehensive coverage.
Claim severity increased at roughly the same rates for both collision and comprehensive coverages, up 24.9 percent and 25.3 percent, respectively.

INCURRED LOSSES FOR AUTO INSURANCE, 2002-2006 (1)

($000)

	2002	2003	2004	2005	2006
Private passenger liability	$58,847,771	$59,888,192	$59,462,599	$60,162,287	$58,001,992
Private passenger physical damage	36,796,195	37,275,789	35,340,643	38,058,732	37,249,977
Commercial auto liability	13,518,027	12,935,514	12,465,305	12,246,997	12,017,532
Commercial auto physical damage	3,900,759	3,623,862	3,615,720	3,865,846	3,903,000
Total	$113,062,752	$113,723,357	$110,884,267	$114,333,862	$111,172,501
(1) Losses occurring within a fixed period, whether or not adjusted or paid during the same period, on a direct basis before reinsurance. Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.

THE SHARED/RESIDUAL MARKET AND NONSTANDARD MARKETS

All states and the District of Columbia use special systems to guarantee that auto insurance is available to those who cannot obtain it in the private market. Each type of system is commonly known as an assigned risk plan, although the term technically applies to only one type of plan. The assigned risk and other plans are known in the insurance industry as the shared, or residual, market. Policyholders in assigned risk plans are assigned to various insurance companies doing business in the state. In the voluntary, or regular, market, auto insurers are free to select policyholders.

The percentage of vehicles insured in the shared market is dropping, in part because of the evolution of the nonstandard sector of the voluntary market. The nonstandard market is a niche market for drivers who have a worse than average driving record or drive specialized cars such as high-powered sports cars and custom-built cars. It is made up of small specialty companies, whose only business is the nonstandard market, and well-known auto insurance companies with nonstandard divisions.

Until the mid-1960s, most drivers who did not meet an insurance company’s “standard” or “preferred risk” underwriting criteria could only find coverage in the shared market, where prices are generally much higher and insurers pool or share the profits and losses. With advancements in computer technology that made it easier to set appropriate prices for smaller and smaller risk categories, some insurers began to specialize in insuring drivers with marginally bad driving records. By the late 1990s the nonstandard market accounted for about one-fifth of the total private passenger auto insurance market. This has held steady. A 2008 Conning study found that in 2006 auto insurers specializing in nonstandard private passenger auto insurance had direct premiums written of $36.9 billion, representing 22 percent of the total private passenger auto insurance market.

PRIVATE PASSENGER CARS INSURED
IN THE SHARED AND VOLUNTARY MARKETS, 2005

State	Voluntary	Shared market	Total	Shared market as a percent of total
Alabama	3,176,976	39	3,177,015	0.001%
Alaska	391,726	936	392,662	0.238
Arizona	3,661,357	224	3,661,581	0.006
Arkansas	1,951,114	10	1,951,124	0.001
California	24,493,775	29,349	24,523,124	0.120
Colorado	3,345,472	5	3,345,477	(1)
Connecticut	2,400,289	3,473	2,403,762	0.144
Delaware	589,067	210	589,277	0.036
D.C.	214,919	1,298	216,217	0.600
Florida	10,879,337	238	10,879,575	0.002
Georgia	6,412,105	41	6,412,146	0.001
Hawaii	764,912	5,563	770,475	0.722
Idaho	1,099,670	106	1,099,776	0.010
Illinois	7,660,096	3,085	7,663,181	0.040
Indiana	4,266,377	19	4,266,396	(1)
Iowa	2,313,665	34	2,313,699	0.001
Kansas	2,265,849	2,061	2,267,910	0.091
Kentucky	2,870,315	708	2,871,023	0.025
Louisiana	2,664,598	349	2,664,947	0.013
Maine	1,022,983	345	1,023,328	0.034
Maryland	3,678,817	100,465	3,779,282	2.658
Massachusetts	3,899,990	246,772	4,146,762	5.951
Michigan	6,319,595	3,692	6,323,287	0.058
Minnesota	3,580,638	NA	3,580,634	NA
Mississippi	1,696,577	385	1,696,962	0.023
Missouri	3,984,312	148	3,984,460	0.004
Montana	728,196	425	728,621	0.058
Nebraska	1,426,135	11	1,426,146	0.001
Nevada	1,631,359	42	1,631,401	0.003
New Hampshire	879,213	2,087	881,300	0.237
New Jersey	5,043,694	88,921	5,132,615	1.732
New Mexico	1,328,702	149	1,328,851	0.011
New York	8,887,213	213,655	9,100,868	2.348
North Carolina	5,083,738	1,546,437	6,630,175	23.324
North Dakota	562,102	1	562,103	(1)
Ohio	7,936,071	0	7,936,071	(1)
Oklahoma	2,552,269	277	2,552,546	0.011
Oregon	2,575,410	28	2,575,438	0.001
Pennsylvania	8,230,275	50,757	8,281,032	0.613
Rhode Island	641,028	32,331	673,359	4.801
South Carolina	3,040,916	2	3,040,918	(1)
South Dakota	642,607	0	642,607	(1)
Tennessee	3,999,819	96	3,999,915	0.002
Texas	NA	NA	NA	NA
Utah	1,620,366	3	1,620,369	(1)
Vermont	464,849	1,708	466,557	0.366
Virginia	5,795,282	7,490	5,802,772	0.129
Washington	4,225,103	3	4,225,106	(1)
West Virginia	1,236,758	579	1,237,337	0.047
Wisconsin	3,618,968	0	3,618,968	(1)
Wyoming	460,658	1	460,659	(1)
United States	178,215,262	2,344,554	180,559,816	1.298
(1) Less than 0.001 percent. NA=Data not available. Source: Automobile Insurance Plans Service Office.

In 2005, 1.3 percent of vehicles were insured in the shared market, compared with 3.6 percent in 1995.
The number of vehicles in the shared market nationwide fell 11.8 percent in 2005.
North Carolina has the highest percentage of cars in the shared market, 23 percent, followed by Massachusetts with 6 percent and Rhode Island with 5 percent.
While North Carolina, Massachusetts and New York have the most vehicles in shared market plans, the number of cars in each of the states' plans fell in 2005—-by 37.8 percent in New York, 8.4 percent in Massachusetts and 0.5 percent in North Carolina.

COLLISION LOSSES

The chart below shows the claim frequency, average loss payment per claim and average loss payment per insured vehicle year under collision coverage for recent model vehicles. The last item factors in both claim frequency and the average loss payment per claim. This combination is a measurement of both how often collision claims are filed and the magnitude of those claims.

The claim frequency is expressed as a rate per 100 insured vehicle years. A vehicle year is equal to 365 days of insurance coverage for a single vehicle.

COLLISION COVERAGE INSURANCE LOSSES IN YEARS SINCE INTRODUCTION,
2004-2006 MODEL YEAR PASSENGER VEHICLES

	2004	2005	2006	2004-2006
Claim frequency per 100 insured vehicle years
Passenger cars and minivans	7.7	7.8	7.8	7.7
Pickups	5.5	5.6	5.7	5.6
Sport-utility vehicles	5.7	5.8	5.5	5.7
All passenger vehicles	6.7	6.9	6.9	6.8
Average loss payment per claim
Passenger cars and minivans	$3,969	$4,029	$4,241	$4,013
Pickups	4,414	4,455	4,608	4,439
Sport-utility vehicles	4,010	3,902	3,842	3,966
All passenger vehicles	4,048	4,059	4,204	4,063
Average loss payment per insured vehicle year
Passenger cars and minivans	$304	$315	$329	$310
Pickups	244	251	262	247
Sport-utility vehicles	228	225	213	226