Insurance Institute Sees Minor Jump in Coverage Costs

Consumers’ average auto insurance expenditure could rise to $839 this year, making 2012 the third straight year of increases, according to projections released this week by the Insurance Information Institute (III).

If the average expenditure does reach the projected $839, it would put the figure close to the peak of consumers’ costs in 2004, when they spent an average of $842 on auto coverage—the highest average expenditure in the past 18 years.

The latest estimate would represent a 2.8 percent jump from 2011 and a 6.8 jump from 2009.

Price Jump Nominal after Adjusting for Inflation

The projected increase is nominal when adjusted for inflation, amounting to an adjusted $3 jump between 2011 and 2012. The inflation adjustment also makes the 2012 estimate lower than any average expenditure recorded between 1994 and 2010, according to the III.

The reason that the increase in dollar amount is so minor is that “the inflation rate has remained quite steady in recent years,” said Michael Barry, III vice president for media relations, in an interview.

Unaffordable hikes are virtually impossible with the today’s combintion of state regulation and a competitive marketplace where consumers have a healthy number of choices when they compare auto insurance companies, Barry said.

“Consumers who find that their auto insurer, in their view, is charging too much are certainly not lacking for options,” Barry said. “In almost every state, you have a very competitive marketplace.”

Consumer Habits Contribute to Trend

Barry added that average expenditures do not necessarily equate to the price of coverage, but instead represent what consumers pay for coverage.

“During the economic downturn, you may have incidents where people are looking to save money and are forgoing optional kinds of coverage,” he said.

One of those optional coverage forms is comprehensive coverage, which Barry said consumers are unwisely dropping from their policies to save money.

“That’s not a good decision because it ends up being a relatively small percentage of your entire coverage costs, yet it covers a very broad number of events that usually happen,” said Barry, who offered examples such as trees falling on a vehicle and partial or complete flooding of a vehicle, both of which would be covered by comprehensive coverage.

The estimates are based on a combination of expenditure figures from the National Association of Insurance Commissioners and the Consumer Price Index, Barry said.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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