What factors impact auto insurance rates?

There are a number of factors that impact the rates that individuals pay for auto insurance protection. These include auto congestion by geographic location, lawsuits related to auto injuries, rising medical costs, rising car repair costs, and auto insurance fraud.

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Geographic Location

As urban areas continue to expand, and suburban areas become increasingly congested, the number of cars per square mile is increasing sharply in many geographic areas. For example, New Jersey is the most densely populated state in the country. Consequently, because New Jersey has more cars grouped closer together there are more accidents. More accidents results in higher insurance rates. On the contrary, rural, less populated areas will have lower insurance rates.

Lawsuits

One of the most significant factors affecting auto insurance companies is the tort system. The number of auto related lawsuits being filed has steadily increased since the early 1980's. Because insurers are obligated to pay defense costs for all lawsuits, this cost has impacted auto insurance rates overall. Regardless of the type of lawsuit, or the possible frivolous nature of the lawsuit, auto insurance companies must contend with significant legal fees. Additionally, the dollar amounts of awarded judgments in non-economic areas like “pain and suffering” have increased over the past 20 years.

Medical Costs

Rising medical costs have had a significant impact on auto insurance rates over the past 20 years. In general, medical costs have been rising at a rate more than twice the general inflation rate. A large percentage of these medical claims are related to "soft tissue" injuries. These types of injuries are often controversial and often result in long term treatment with uneven results.

Car Repair Costs

Cars today are more expensive than they have ever been. Cars have also grown more sophisticated mechanically and technologically. These advancements include such things as air bags, fuel injection and onboard computer systems. While these are all excellent advancements, they add to the cost of repair when an accident occurs. In effect, auto insurance rates are impacted.

Fraud

According to the National Insurance Crime Bureau, fraud costs property and casualty insurance companies more than $20 billion a year, that's equal to 10 percent of all property and casualty claims paid industry wide. Fraudulent auto insurance claims end up impacting the auto insurance rates of everyone in a negative way