Facts + Statistics: Auto insurance

Costs and expenditures

The countrywide average auto insurance expenditure rose 3.3 percent to $841.23 in 2013 from $814.63 in 2012, according to a January 2016 report from the National Association of Insurance Commissioners. In 2013 (the latest data available), the average expenditure was highest in New Jersey ($1,254.10), followed by the District of Columbia ($1,187.49), and New York ($1,181.86).

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.

AAA’s 2016 Your Driving Costs study found that the average cost to own and operate an average sedan was $8,558 in 2015, down 1.6 percent from $8,698 in 2014. The decline reflects reduced gasoline costs offsetting increases in maintenance, insurance, finance charges and other costs. Average insurance costs for sedans rose 9.6 percent, or $107, to $1,222 in 2015 from $1,115 in 2014. AAA insurance cost estimates are based on a full coverage policy for a 47-year old male with a clean driving record for a policy with $100,000/$300,000 bodily injury liability coverage with a $500 deductible for collision and a $100 deductible for comprehensive coverage. Figures are not comparable with the National Association of Insurance Commissioners’ Auto Expenditures data below.

Auto insurance expenditures, by state

The tables on the following pages show estimated average expenditures for private passenger automobile insurance by state from 2010 to 2014, 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 with a healthy economy, 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 three variables—urban population, miles driven per number of highway miles, and disposable income per capita—are correlated with the state auto insurance premiums.  It also notes that high-premium states tend to also be highly urban, with higher wage and price levels, and greater traffic density. Other factors can also affect auto insurance prices.

Premiums

Auto claims

Liability insurance pays for the policyholder’s legal responsibility to others for bodily injury or property damage. Collision and comprehensive insurance cover property damage and theft to the policyholder’s car.

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 that 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 both 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.

Collision losses

The chart below shows the claim frequency and average loss payment per claim and average loss payment per insured vehicle year under collision coverage for recent model vehicles. 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.

Consumer prices

The Bureau of Labor Statistics consumer price index (CPI) tracks changes in the prices paid by consumers for a representative basket of goods and services. The cost of living (all items) rose 1.3 percent in 2016. The cost of motor vehicle insurance and hospital services rose more (6.2 percent and 4.5 percent, respectively). The cost of tenants and household insurance rose 0.9 percent and medical care rose 3.8 percent.