Auto Insurance

COSTS AND EXPENDITURES

The average auto insurance expenditure dropped from $818 in 2006 to $791 in 2010, according to a January 2013 report from the National Association of Insurance Commissioners. In 2010 (the latest data available), the average expenditure was highest in New Jersey ($1,157), followed by the District of Columbia ($1,134), and Louisiana ($1,122). The 2010 average expenditure was up slightly (0.6 percent) from $787 in 2009.

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.
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AAA’s 2013 Your Driving Costs study found that the average cost to own and operate a sedan was $9,122 in 2012, up by 2.0 percent, or $176, from the previous year. The cost reflects a relatively large increase in maintenance costs, and more moderate increases in other areas, except for tire costs, which were unchanged. Average insurance costs for sedans rose 2.8 percent, or $28, to $1,029, following a 3.4 percent rise in 2011 and a 6.1 percent drop in 2010. AAA insurance cost estimates are based on typical coverage for a low-risk driver with a clean driving record for a policy 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.

AVERAGE EXPENDITURES FOR AUTO INSURANCE, UNITED STATES, 2001-2010

Source: ©2012 National Association of Insurance Commissioners (NAIC).

• 76 percent of insured drivers purchase comprehensive coverage in addition to liability insurance, and 71 percent buy collision coverage, based on an III analysis of 2010 NAIC data.

TOP TEN MOST EXPENSIVE AND LEAST EXPENSIVE STATES FOR AUTOMOBILE INSURANCE, 2010 (1)

• Based on average automobile insurance expenditures.

Source: ©2012 National Association of Insurance Commissioners (NAIC).

AUTO INSURANCE EXPENDITURES, BY STATE

The tables on the following pages show estimated average expenditures for private passenger automobile insurance by state for 2006 to 2010, 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, 2006-2010

1. Ranked highest to lowest by average expenditure.
2. Preliminary.

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: ©2012 National Association of Insurance Commissioners (NAIC).

PREMIUMS

PRIVATE PASSENGER AUTOMOBILE INSURANCE, 2003-2012

($000)

1. After reinsurance transactions, excludes state funds.
2. After dividends to policyholders. A drop in the combined ratio represents an improvement; an increase represents a deterioration.
3. Calculated from unrounded data.

Source: SNL Financial LC.

TOP TEN WRITERS OF PRIVATE PASSENGER AUTO INSURANCE BY DIRECT PREMIUMS WRITTEN, 2012

($000)

1. Before reinsurance transactions, includes state funds.
2. Based on U.S. total, includes territories.
3. Data for Farmers Insurance Group of Companies and Zurich Financial Group (which owns Farmers’ management company) are reported separately by SNL Financial LC.

Source: SNL Financial LC.

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.

PRIVATE PASSENGER AUTO INSURANCE LOSSES, 2003-2012 (1)

1. For all limits combined. Data are for paid claims.
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 car years. A car year is equal to 365 days of insured coverage for one vehicle.
5. Claim severity is the size of the loss, measured by the average amount paid for each claim.
6. Includes loss adjustment expenses.
7. Excludes Massachusetts, Michigan and Puerto Rico. Based on coverage with a $500 deductible.
8. Excludes wind and water losses.

Source: ISO, a Verisk Analytics company.

• Liability insurance covers damage to others; collision and comprehensive insurance covers the policyholder’s own car.
• In 2012 less than 1 percent of people with liability insurance had a bodily injury liability claim, while 3.50 percent of those with liability insurance had a property damage liability claim, according to ISO data.
• In 2012, 5.56 percent of collision insurance policyholders had a claim, while 2.62 percent of people with comprehensive coverage had a claim.
• In 2012, the average auto liability claim for property damage was $3,073; the average auto liability claim for bodily injury was $14,653.
• In 2012, the average collision claim was $2,950; the average comprehensive claim was $1,585.
• A report by Allstate ranking cities in terms of car collisions, named Fort Collins, Colorado, the safest driving city in America in 2011. According to the report, the average driver in Fort Collins experiences an auto collision every 14 years, which is 28.6 percent less likely than the national average of 10 years. Washington, D.C. drivers were at the bottom of the ranking, with an accident every 4.8 years, on average.

INCURRED LOSSES FOR AUTO INSURANCE, 2007-2011 (1)

($000)

1. Losses occurring within a fixed period, whether or not adjusted or paid during the same period, on a direct basis before reinsurance.

Source: SNL Financial LC.

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.

PRIVATE PASSENGER CARS INSURED IN THE SHARED AND VOLUNTARY MARKETS, 2011

1. Less than 0.001 percent.
2. Texas car years are no longer available.

NA=Data not available.

Source: Automobile Insurance Plans Service Office.

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 overall insurance losses.

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, 2008-2010 MODEL YEAR PASSENGER VEHICLES (1)

1. Results based on data from model year introduction through July 2010. Older model years will have payments at different development stages than new model years.

Source: Highway Loss Data Institute.

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 2.1 percent in 2012. The rise in the cost of auto insurance was steeper (3.6 percent) while the cost of doctors’ services rose only 2.1 percent and legal services rose 2.0 percent, 2011 to 2012.

CONSUMER PRICE INDICES FOR INSURANCE AND RELATED ITEMS AND ANNUAL RATES OF CHANGE, 2003-2012

(Base: 1982-84=100

CONSUMER PRICE INDICES FOR INSURANCE AND RELATED ITEMS AND ANNUAL RATES OF CHANGE, 2003-2012 (Cont’d)

(Base: 1982-84=100)

CONSUMER PRICE INDICES FOR INSURANCE AND RELATED ITEMS AND ANNUAL RATES OF CHANGE, 2003-2012 (Cont’d)

(Base: 1982-84=100)

1. December 1996=100.
2. December 1983=100.
3. December 1997=100.
4. Only includes insurance covering rental properties.
5. Includes appliances, reupholstery and inside home maintenance.
6. Preliminary.

NA=Data not available.

Note: Percent changes after 2007 for consumer price indices and all years for the median price of existing single-family homes calculated from unrounded data.

Source: U.S. Department of Labor, Bureau of Labor Statistics; National Association of Realtors.

Article Source: http://www.iii.org