Without adjusting for inflation, the average annual amount that American drivers spent on auto insurance in 2010 was 43 percent higher than what they spent for it in 1989, according to a recent report from Consumer Federation of America (CFA).
In that period, average auto coverage expenditures rose higher than that national average in 37 states. Eight states saw an average increase between 25 percent and 43 percent and four states saw an increase of less than 25 percent.
The average expenditure for auto coverage was $791 in 2010, according to the CFA, which is $240 above the average expenditure in 1989.
California was the only state where average annual expenditures dropped between 1989 and 2010, falling 0.3 percent in that time.
The CFA analysis is based on data from the National Association of Insurance Commissioners (NAIC).
Cost Stats Don’t Account for Inflation
It’s important to note that the CFA did not adjust the amounts for inflation. The inflation rate between 1989 and 2010 was 76 percent, according to the Bureau of Labor Statistics.
So while the national average auto insurance expenditure in 1989 was $541 in 1989 dollars, that amount would actually be about $952 in 2010 dollars.
Once inflation is taken into account, the results are much different, with the national average expenditure actually falling 17 percent.
If you look at the numbers state by state, only 12 had auto insurance increases that outpaced the rate of inflation.
Report Says Nebraska Rates Jumped Significantly
Nebraska saw the highest increase between 1989 and 2010 of a little more than 108 percent, according to the CFA.
Peg Jasa, a spokeswoman for the state’s regulatory agency, declined to comment on the CFA analysis. She said that the agency has no analysis of rates over time, but added that Nebraska had the sixth-lowest expenditure for auto coverage in 2010, the most recent year for which the NAIC has data.
The CFA report found that the following 10 states had the highest increases in average expenditures between 1989 and 2010:
– Nebraska: 108.1 percent increase
– Louisiana: 96.1 percent increase
– Montana: 95.4 percent increase
– Wyoming: 95.1 percent increase
– Kentucky: 92.3 percent increase
– South Dakota: 92 percent increase
– West Virginia: 89.9 percent increase
– North Dakota: 86.8 percent increase
– Utah: 86.1 percent increase
– Kansas: 83.5 percent increase
CFA Says California the Only State to See Drop in Prices
California’s 0.3 percent drop in auto insurance spending equates to drivers paying $2 less for coverage in 2010 than they did in 1989, according to the CFA. California’s 2010 average is lower than 20 states and 6 percent lower than the nationwide average.
The consumer group drew a direct link between California’s rate trends and Proposition 103, a voter-approved initiative that took effect in 1989, applauding the law for the “prior approval” process that it instituted.
Under that system, insurers’ pricing factors and ratemaking processes are highly regulated.
Such “strong oversight” of rates is unlike any other in the U.S. and generated a similarly unprecedented drop in the price of California auto coverage, according to J. Robert Hunter, the CFA’s insurance director.
“California’s version of prior approval regulation includes additional protections that have made the state’s insurance system much more effective than any other states’ systems,” Hunter said in a statement.
Also under Proposition 103, consumers can call for hearings on insurers’ rates and practices. Hunter said the analysis shows that involving consumers in the rate-setting process “adds another layer of scrutiny” and “measure of accountability” that can stabilize rates over time.
However, the Association of California Insurance Companies (ACIC) disputes the claim that Proposition 103 helped lower rates.
“If anything, Prop. 103 makes it more difficult for insurers to file rating plans and get new products into the marketplace in a timely manner,” ACIC spokeswoman Nicole Mahrt Ganley told Online Auto Insurance News (OAIN).
The law also spurred “a number of lawsuits, expending much time and money” and “increased regulatory bureaucracy,” according to the ACIC.
The ACIC attributes drops in auto coverage premiums to improvements in highway and car safety like antilock brakes and air bags.
Nancy Kincaid, a spokeswoman for the CID, said that the department has no comment on the CFA study, though CID Commissioner Dave Jones supports the regulations that Proposition 103 introduced.
“[Jones] does believe rate regulation has made a significant difference for consumers,” she told OAIN. “Prior approval has been essential in helping consumers get a fair shake on rates.”