When we consider the factors affecting auto insurance premiums, one that often gets overlooked is the impact of state insurance regulations. These laws differ widely between states, and the requirements in each do affect how much you have to pay for coverage.
A good example is the impact no-fault insurance regulations have had on price. In a recent study of the highest priced insurance premiums by state, four of the ten most expensive were no-fault states. That?s significant since only a dozen of the states fall into this category. Interestingly, no-fault laws were originally adopted to make premiums cheaper. The idea was that getting rid of the court cases involved in auto accidents would make things cheaper on the insurance companies and those savings would be passed along to the consumer.
Instead, many of these states have seen skyrocketing premiums. In Michigan, which is the most expensive state, premiums represent over 8% of the median family income. In Florida, which ranked as the tenth most expensive state, families pay more than 3.3% of their income for premiums. Both states suffer from the same problem: they require personal injury protection coverage.
With no fault insurance, drivers submit claims to their own insurance company. Personal injury protection, or PIP, covers the medical bills. As medical costs have skyrocketed, insurance companies face higher and higher claims. They also face fraudulent claims with some drivers faking accidents in order to receive money. In Michigan, the amount of money paid to an injured driver is unlimited and can go on as long as necessary. That means one accident could cost an insurance company millions of dollars and those costs are passed onto the consumer.
On the other hand, Hawaii was one of only two no-fault states to be ranked among the ten cheapest for auto insurance premiums in the same study. Like other no-fault states, Hawaii requires PIP coverage as part of their insurance regulations. However, the state limits the amount that can be paid through such a policy. If the claims exceed that amount, the at- fault driver?s insurance will pay the remainder. Consequently, insurance buyers in Hawaii are also required to purchase liability policies to cover property damage and medical bills.
Tort states, such as Louisiana, can also be expensive. These states require the insurance company of the driver at fault to pay for the other driver?s injuries and damages. In the case of Louisiana, nearly half of auto accidents involve the hiring of a lawyer at some point and all of those court battles cost insurance companies a lot. Those expensive are passed onto consumers in higher premiums.
Other tort states keep costs low by setting prices. North Carolina, for example, has an organization consisting of all the state?s licensed insurers, and they determine the price for coverage. While companies can offer lower prices, they rarely charge more. However, they also have the option to refuse high-risk drivers coverage.
As these examples illustrate, each state?s rules can impact the premiums you pay. Short of moving to another state or petitioning your state government to change the rules, these are issues you have little control over.
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