Why Car Insurance Rates Differ Geographically

A 2013 study conducted by Insure.com revealed the average costs of auto insurance across the United States. Once again, Louisiana stood out as the most expensive in the nation, with an annual average of $2,699. For No. 2, you had to head up north to Michigan, which revealed an annual average of $2,520. Why were these two states, located approximately 1,200 miles apart, so much more expensive than areas with higher populations?

The comparison begs the question: What causes car insurance rates to differ so dramatically from one state to the next? In our experience, it boils down to three important factors:

Cost of Labor

Say you own a BMW, and you’re living in an area where there is only one body shop that is certified to work on that style of automobile. A lack of competition can lead to that shop charging insurance companies higher rates of repair, and eventually, those costs have to be made up, resulting in an eventual lift in the geographical average. While it certainly isn’t the only stressor on insurance companies, it can contribute to overhead.

“What’s more,” Forbes notes, “Those who live in Oregon and own a high-performance Mercedes-Benz CL 65 AMG luxury coupe can be expected to pay the highest car insurance rates among all US motorists at a whopping annual average premium of $5,867, and that assumes a clean driving record. The national average is currently a far more modest $1,510.”

State Legislation

This is a big one! How states legislate the auto insurance industry is arguably the biggest determining factor on whether that state will experience higher average costs. As one example, we turn to Forbes.com, which reported that state regulations in Michigan guarantee unlimited, lifetime personal-injury protection benefits for treatment of injuries that result from an auto accident.

Often, laws may require an insurance company in one state to cover X, while another state may not have that requirement at all. Also, there may be laws that tighten methods for how an automobile must be repaired.

According to Dan Holliday, a former Liberty Mutual agent, if a state is highly regulated (as New Jersey and Michigan are), and it also has very high loss rates, then that state is going to have a really high average insurance premium.”

In other words, the law can either be your best friend or your worst obstacle to affordable auto insurance.

Accidents, Behavioral Risks, and the Legal System

Finally, there is the indisputable influence of high-risk parts of the country. Simply put, some states are better at driving and obeying traffic laws than others, resulting in more claims and more costs.

Insure.com editorial director Amy Danise points out that Louisiana is the most expensive for auto insurance “in part because of the high number of claims for bodily injury filed each year and the fact that accident lawsuits for less than $50,000 go before elected judges, who more often side with consumers than the insurance companies.”

The Top 10 Most Expensive

Bottom line, if you live in one of the following states, get ready to pay more:

1. Louisiana – $2,699

2. Michigan –  $2,520

3. Georgia –    $2,155

4. Oklahoma – $2,074

5. Washington, D.C. – $2,006

6. Montana –    $1,914

7. California –   $1,819

8. West Virginia – $1,816

9. Rhode Island – $1,735

10. Kentucky –   $1,725

(Hat tip to Forbes and Insure.com.)

Are you satisfied with the cost of auto insurance in your state? What do you think could be done differently?

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