The Washington Post reports that rates of auto insurance are increasing at double the rate of inflation. The average estimated premium nationally is $1,427. According to consumer advocacy groups, insurance companies are utilizing Big Data to determine rates for drivers. The data, based on factors such as credit ratings and levels of education, are most likely to negatively impact lower-income motorists. Chuck Bell, of the Consumers Union, says that insurers are using this data outside of the scope of state regulators.
Detroit leads U.S. cities with the highest average auto insurance premiums at $5,414 per year. This is compared to Washington D.C., with an average of $1,464 and Maryland at an average of $1,240.
James Lynch, a Chief Actuary & Vice-President with the Insurance Information Institute (III), has been tracking the market very closely. Lynch says that roughly 45% of the rise is attributed to claims of personal injury. Another major factor he cites is distracted driving, saying that the problem is “reaching epidemic proportions.”
The federal government's 2015 estimates said distracted driving attributed to 14% of accidents involving injury and 10% involving a fatality. Almost 75% of motorists say distracted driving is “a major concern”.
Federal Trade Commission data also showed motorists with lower credit scores tend to file more insurance claims, and that the claims tend to be higher cost compared to those with good credit.
Robert Hunter, Insurance Director for the Consumer Federation of America, says claims are more common among those with poor credit because higher income individuals are more likely to pay for a collision “out of pocket” rather than risk an insurance rate increase. A 2015 Consumer Reports release further revealed insurers use many factors to determine rates that do not directly relate to risks of driving. One finding was that insurers study the likelihood that a consumer will “shop around” in the event of slow rate increases.
The III reviewed some aspects of the internal finances of auto insurers covering D.C. motorists. In 2014, 21% of collected premiums went to operating costs and taxes, while 70% went towards paying claims. By 2016, 20% of premiums went to pay operating costs and taxes, yet the amount needed to pay claims rose to 85%. This trend is occurring nationally and it applies to all forms of auto insurance coverage—not just liability.
Between 2015 and 2017, insurers in the Washington D.C. market experienced the following increases:
- Costs for bodily injury liability: 11%
- Costs for property loss liability: 15%
- Personal Injury Protection (PIP) costs: 46%
- Costs of collision coverage: 12%
Much of the increase in rates is also due to the costs of replacing parts. As manufacturers add the additional safety features, the replacement cost is higher. To replace the bumper on a 2014 luxury vehicle the cost was an average of $1,846. With the sensors and cameras that are now housed in the 2016 models, the average replacement cost rose to $3,551.