The Shocking Truth Behind Auto Insurance and Why Premiums Are on the Rise

Auto insurance premiums are rising faster than a hot air balloon on a cool day. But I’m sure I don’t have to tell you that.

With just one look at your bank account you can see how it’s spiking, well in excess of inflation. Today, most Americans’ auto insurance is approaching $150 or more a month. Let’s talk about why rates are trending up and some of the factors that go into it.

Before we go any further you should know that you’re not alone – most Americans are experiencing premium increases and the facts confirm it. The average premium per passenger vehicle has jumped more than 16.8% since 2009, according to the Bureau of Labor Statistics. And that’s against consumer inflation of 8.6% over the same period.

The American Automobile Association reports that the average American spends over $1,222 in auto insurance premiums. This matches research from both Consumer Reports and the National Association of Insurance Commissioners.

You might be asking how much are these increases profit-driven? Well, 53% of the market is controlled by the five big auto insurers. I’m sure you know their names – Geico, Farmers, Allstate, State Farm, and Progressive. As a group they rake in over $96 billion a year in auto insurance premiums. Now, that’s a lot of coin.

While some of the increases in premiums are driven by the Big Five to boost their revenue, there are other reasons, too.

More Miles, More Money

The truth is people in the US drive more than ever. The number of Americans with driver’s licenses has jumped from 145 million in 1980 to more than 210 million today. More than 87.5% of Americans aged 16 years and older reported driving in the past year.

What’s more, Americans spend an average of more than 17,600 minutes behind the wheel each year, according to the AAA Foundation for Traffic Safety. That’s more than 290 hours. Additionally, last year alone, Americans racked up a total of 3.15 trillion miles on the road.

All of this extensive driving translates to more car cashes and collisions. And the amount of auto insurance collision claims demonstrates this. Claims have consistently grown in 14 of the last 16 quarters. Last year 7 out of every 100 insured vehicles had a collision claim.

Not only are claims more frequent, but they’re getting more expensive, too. The cost per claim is up 4.7%.  That’s an average of $3,350 per claim and a total of $21.4 billion in the US.  These growing expenses don’t explain the bulk of the increase in insurance premiums, however.

Bodily and personal injuries are two of biggest expense categories for insurers despite the fact that car safety has improved.  Cars are getting safer and safer.   Over the past 10 years bodily injury claims have plummeted by14.5% to 0.8 claims per 100 insured vehicles.  Bodily injury claims have dropped by over 15.6% -- that’s 1.25 per 100 vehicles.  The problem is that the cost for these claims has skyrocketed, according to the Insurance Research Council.

The cost per bodily injury claims increased by 32% over the past 12 years, exploding to $15,500 per occurrence.  Personal injury claims are up over 38% to more than $8,000 each. The combined cost to insurers was nearly $31 billion last year.  While drivers are less likely to be injured in crashes, the rising price to treat those injuries far outweighs the drop in numbers.

Auto insurance is also largely regulated at the state level, as well.  States create their own standards involving coverage costs.   This translates to major regional disparities.  For example, a motorist in Ohio can move to Michigan and their insurance bill can jump by up to 67% just because of the local laws.

There are many reasons why your auto insurance premium is rising.  More car crashes and collisions, bodily and personal injuries, and state regulations are all factors.  The trend of swelling premiums won’t change until these issues and others are dealt with.