III - Auto Insurance

FACTS AND STATISTICS

Auto Insurance

The average cost of automobile insurance declined by 1.7 percent in 2006, according to a November 2008 report from the National Association of Insurance Commissioners (NAIC). The District of Columbia had the highest average expenditure ($1,164), followed by New Jersey ($1,152), Louisiana ($1,094), New York ($1,083) and Florida ($1,069).

AVERAGE EXPENDITURES FOR AUTO INSURANCE,
UNITED STATES, 1997-2006

Year	Average expenditure	Percent change	Year	Average expenditure	Percent change
1997	$705	2.0%	2002	$786	8.3%
1998	703	-0.3	2003	830	5.6
1999	685	-2.6	2004	842	1.4
2000	690	0.7	2005	831	-1.3
2001	726	5.2	2006	817	-1.7
Source: © 2007 National Association of Insurance Commissioners.

77 percent of insured drivers purchase comprehensive coverage in addition to liability insurance, and 72 percent buy collision coverage, according to 2006 NAIC data.

TOP TEN MOST EXPENSIVE AND LEAST EXPENSIVE STATES
FOR AUTOMOBILE INSURANCE, 2006 (1)

Rank	Most expensive states	Average expenditure	Rank	Least expensive states	Average expenditure
1	D.C.	$1,164	1	North Dakota	$530
2	New Jersey	1,152	2	Iowa	536
3	Louisiana	1,094	3	South Dakota	554
4	New York	1,083	4	Idaho	577
5	Florida	1,069	5	Kansas	579
6	Massachusetts	1,042	6	Nebraska	584
7	Rhode Island	1,038	7	Wisconsin	590
8	Delaware	1,024	8	North Carolina	596
9	Nevada	1,006	9	Indiana	631
10	Connecticut	981	10	Maine	634
(1) Based on average automobile insurance expenditures. Source: © 2008 National Association of Insurance Commissioners.

AUTO INSURANCE EXPENDITURES, BY STATE

The table on the following pages shows estimated average expenditures for private passenger automobile insurance by state for 2002 to 2006, providing approximate measures of the relative cost of automobile insurance to consumers in each state. To calculate average expenditures the National Association of Insurance Commissioners assumes that all insured vehicles carry liability coverage but not necessarily collision or comprehensive coverage. The average expenditure measures what consumers actually spend for insurance on each vehicle. It does not equal the sum of liability, collision and comprehensive expenditures because not all policyholders purchase all three coverages.

Expenditures are affected by the coverages purchased as well as other factors. In states where the economy is healthy, people are more likely to purchase new cars. Since new car owners are more likely to purchase physical damage coverages, these states will have a higher average expenditure. The NAIC notes that urban population, traffic density and per capita income have a significant impact on premiums. The latest report shows that high premium states tend also to be highly urban, with higher wage and price levels and greater traffic density. Tort liability and other auto laws, labor costs, liability coverage requirements, theft rates and other factors can also affect auto insurance prices.

AVERAGE EXPENDITURES FOR AUTO INSURANCE BY STATE, 2005-2006

	2006					2005
State	Liability	Collision	Compre- hensive	Average expenditure	Rank (1)	Average expenditure	Rank (1)	Average expenditure percent change 2005-2006
Alabama	$367	$318	$135	$684	35	$679	37	0.7%
Alaska	596	381	158	955	11	968	11	-1.3
Arizona	507	310	231	913	14	929	14	-1.7
Arkansas	387	291	161	684	34	694	34	-1.4
California (2)	483	376	118	843	16	842	19	0.2
Colorado	453	281	188	785	23	829	21	-5.3
Connecticut	621	335	125	981	10	993	9	-1.2
Delaware	706	298	111	1,024	8	1,028	8	-0.3
D.C.	610	445	261	1,164	1	1,187	1	-2.0
Florida	752	287	113	1,069	5	1,064	6	0.5
Georgia	424	372	169	788	22	785	24	0.4
Hawaii	542	309	117	853	15	846	18	0.8
Idaho	339	232	125	577	48	585	48	-1.4
Illinois	410	296	118	740	27	743	28	-0.4
Indiana	361	253	111	631	43	658	41	-4.0
Iowa	282	199	163	536	50	555	50	-3.6
Kansas	300	235	198	579	47	589	47	-1.7
Kentucky	484	266	132	739	28	751	26	-1.5
Louisiana	660	386	209	1,094	3	1,078	5	1.5
Maine	362	270	106	634	42	644	42	-1.6
Maryland	564	326	146	949	12	948	12	0.1
Massachusetts	670	327	127	1,042	6	1,113	4	-6.4
Michigan	494	415	158	925	13	931	13	-0.6
Minnesota	446	224	173	753	25	792	23	-4.9
Mississippi	430	294	165	746	26	746	27	0.0
Missouri	379	262	146	673	36	685	36	-1.8
Montana	399	241	197	661	37	686	35	-3.7
Nebraska	327	213	189	584	46	619	44	-5.7
Nevada	651	344	142	1,006	9	985	10	2.1
New Hampshire	435	300	109	793	21	792	22	0.2
New Jersey	747	378	160	1,152	2	1,185	2	-2.8
New Mexico	457	292	165	737	29	731	30	0.8
New York	730	331	153	1,083	4	1,125	3	-3.7
North Carolina	342	251	121	596	44	602	46	-1.0
North Dakota	255	196	238	530	51	555	51	-4.4
Ohio	382	252	104	654	39	670	39	-2.3
Oklahoma	384	271	169	659	38	678	38	-2.9
Oregon	483	226	103	726	30	738	29	-1.7
Pennsylvania	499	309	125	832	18	850	17	-2.1
Rhode Island	695	377	125	1,038	7	1,062	7	-2.2
South Carolina	471	255	149	756	24	754	25	0.3
South Dakota	296	200	202	554	49	566	49	-2.2
Tennessee	363	293	123	654	40	659	40	-0.8
Texas	454	349	175	820	20	857	16	-4.3
Utah	424	266	120	702	31	707	31	-0.7
Vermont	361	298	129	687	32	700	32	-1.8
Virginia	395	264	118	685	33	700	33	-2.1
Washington	543	260	127	839	17	842	20	-0.3
West Virginia	510	297	180	827	19	859	15	-3.7
Wisconsin	331	204	123	590	45	615	45	-4.1
Wyoming	334	261	216	639	41	640	43	-0.2
United States	$489	$308	$140	$817		$831		-1.7%
(1) Ranked by average expenditure. (2) Preliminary. Note: Average expenditure=Total written premium/liability car years. A car year is equal to 365 days of insured coverage for a single vehicle. The NAIC does not rank state average expenditures and does not endorse any conclusion drawn from these data. Source: © 2008 National Association of Insurance Commissioners.

AVERAGE EXPENDITURES FOR AUTO INSURANCE BY STATE, 2002-2004

	Average expenditure (1)
State	2004	2003	2002
Alabama	$677	$657	$627
Alaska	974	938	884
Arizona	931	921	887
Arkansas	708	698	672
California (2)	846	837	779
Colorado	850	923	921
Connecticut	991	988	970
Delaware	1,022	977	900
D.C.	1,185	1,135	1,044
Florida	1,062	1,018	934
Georgia	779	759	739
Hawaii	817	776	739
Idaho	590	586	563
Illinois	760	762	729
Indiana	671	671	648
Iowa	580	581	548
Kansas	603	611	587
Kentucky	758	739	688
Louisiana	1,062	1,015	928
Maine	650	633	587
Maryland	947	893	840
Massachusetts	1,113	1,052	984
Michigan	980	950	887
Minnesota	829	837	801
Mississippi	749	710	681
Missouri	702	702	669
Montana	683	675	628
Nebraska	637	624	590
Nevada	939	914	896
New Hampshire	798	779	733
New Jersey	1,221	1,193	1,125
New Mexico	728	732	706
New York	1,172	1,168	1,100
North Carolina	597	605	588
North Dakota	562	537	505
Ohio	680	672	642
Oklahoma	690	689	654
Oregon	753	736	682
Pennsylvania	843	813	777
Rhode Island	1,034	997	939
South Carolina	763	745	703
South Dakota	587	564	542
Tennessee	666	650	632
Texas	880	918	864
Utah	722	733	703
Vermont	693	683	650
Virginia	702	658	626
Washington	839	825	791
West Virginia	875	844	778
Wisconsin	636	621	611
Wyoming	629	618	585
United States	$842	$830	$786
(1) Average expenditure=Total written premium/liability car years. A car year is equal to 365 days of insured coverage for a single vehicle. (2) Preliminary. Source: © 2008 National Association of Insurance Commissioners.

TOP FIVE MOST EXPENSIVE AND LEAST EXPENSIVE CITIES FOR AUTOMOBILE INSURANCE, 2007 (1)

Rank	Most expensive cities	Average annual auto premiums	Rank	Least expensive cities	Average annual auto premiums
1	Detroit, MI	$5,072	1	Eau Claire, WI	$869
2	Philadelphia, PA	3,779	2	Norfolk, VA	954
3	Newark, NJ	3,381	3	Raleigh, NC	966
4	Los Angeles, CA	3,027	4	Bismarck, ND	989
5	Hempstead, NY	2,764	5	Burlington, VT	1,001
(1) As of June 2007. Assumes $100,000/$300,000/$50,000 liability limits, collision and comprehensive with $500 deductibles, and $100,000/$300,000 uninsured coverage. Source: Runzheimer International.

Auto insurance is more expensive in urban areas because of the higher density of traffic, increased likelihood of theft and vandalism, and greater incidence of fraud.

TOP TEN WRITERS OF PRIVATE PASSENGER AUTO INSURANCE
BY DIRECT PREMIUMS WRITTEN, 2007

($000)

Rank	Group	Direct premiums written (1)	Market share
1	State Farm Group	$28,365,631	17.5%
2	Allstate Insurance Group	18,328,620	11.3
3	Progressive Group	11,747,357	7.2
4	Berkshire Hathaway Group	11,731,068	7.2
5	Zurich Insurance Group	8,910,730	5.5
6	Nationwide Corp. Group	7,630,446	4.7
7	United Services Automobile Association Group	5,901,969	3.6
8	Liberty Mutual Insurance Group	4,621,806	2.8
9	American International Group (AIG)	3,998,802	2.5
10	American Family Insurance Group	3,559,758	2.2
(1) Before reinsurance transactions, excluding state funds. Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.

WHERE THE PREMIUM DOLLAR GOES,
PRIVATE PASSENGER AUTO INSURANCE, 2007

PREMIUMS EARNED:			$100
CLAIMS:
Payments to injured persons:
Medical	$9
Wage loss and other economic payments	2
Pain and suffering and other noneconomic awards	5
Lawyers’ fees	11
Costs of settling claims	2
Subtotal		$29

Payments for damage to cars (1):
Property damage liability	$17
Collision claims	16
Comprehensive claims	7
Costs of settling claims	1
Subtotal		$41
Total claims		$70

EXPENSES:
Commissions and other selling expenses	$17
General expenses (costs of company operations)	6
State premium taxes, licenses and fees	2
Dividends to policyholders	1
Total expenses		$26

Claims and expense total			$96

BOTTOM LINE:
Investment gain (2)			$9
Pretax income ($100 - $96 + $9)			13
Tax			-5
Income after taxes			$8
(1) Includes theft and damage to other property, e.g., road signs. (2) Includes interest, dividends, and realized capital gains. Source: Insurance Information Institute estimate based on data from ISO; National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.; Insurance Research Council; A.M. Best Company, Inc.

In 2007 claims accounted for $70 of every $100 earned in private passenger auto insurance premiums in the United States.
Lawyers’ fees accounted for $11 out of every $100 in premiums. Half of the fees went to plaintiffs’ attorneys and the remainder to defendants’ attorneys.
Theft accounted for about 25 percent of the dollars that go to pay comprehensive claims, or slightly less than 2 percent of premiums earned for private passenger auto insurance.

PRIVATE PASSENGER AUTO INSURANCE LOSSES,
1998-2007 (1)

	Liability
	Bodily injury (2)		Property damage (3)
Year	Claim frequency (4)	Claim severity (5), (6)	Claim frequency (4)	Claim severity (5)
1998	1.26	$9,437	3.97	$2,240
1999	1.23	9,646	4.00	2,294
2000	1.20	9,807	3.98	2,393
2001	1.16	10,149	3.97	2,471
2002	1.15	10,400	3.92	2,552
2003	1.16	10,662	3.87	2,606
2004	1.14	11,079	3.78	2,624
2005	1.10	11,423	3.67	2,693
2006	1.03	12,020	3.49	2,811
2007	1.00	12,296	3.54	2,869

	Physical damage (7)
	Collision		Comprehensive (8)
Year	Claim frequency (4)	Claim severity (5)	Claim frequency (4)	Claim severity (5)
1998	5.39	$2,273	2.93	$1,078
1999	5.73	2,352	2.80	1,116
2000	5.61	2,480	2.89	1,125
2001	5.53	2,525	3.11	1,152
2002	5.48	2,728	2.91	1,250
2003	5.17	2,919	2.75	1,331
2004	4.88	3,073	2.45	1,420
2005	5.05	3,062	2.37	1,456
2006	4.88	3,189	2.39	1,529
2007	5.14	3,131	2.46	1,519
(1) For all limits combined. Data are for paid claims. (2) Excludes Massachusetts and most states with no-fault automobile insurance laws. (3) Excludes Massachusetts, Michigan and New Jersey. (4) Claim frequency is claims per 100 earned car years. A car year is equal to 365 days of insured coverage for a single vehicle. (5) Claim severity is the size of the loss, measured by the average amount paid for each claim. (6) Includes loss adjustment expenses. (7) Excludes Massachusetts, Michigan and Puerto Rico. Based on coverage with a $500 deductible. (8) Excludes wind and water losses. Source: ISO.

From 1998 to 2007, claim frequency fell 20.6 percent for bodily injury liability claims and 10.8 percent for property damage liability claims.
Claim severity (average claim) for liability coverages rose 30.3 percent for bodily injury claims and 28.1 percent for property damage claims from 1998 to 2007.
Claim frequency fell 4.6 percent for collision coverage and 16.0 percent for comprehensive coverage from 1998 to 2007.
Claim severity increased at roughly the same rates for both collision and comprehensive coverages, up 37.7 percent for collision coverage and 40.9 percent comprehensive coverage from 1998 to 2007.

INCURRED LOSSES FOR AUTO INSURANCE, 2003-2007 (1)

($000)

	2003	2004	2005	2006	2007
Private passenger liability	$56,713,153	$56,317,831	$57,188,070	$56,042,440	$59,776,204
Private passenger physical damage	35,414,529	34,239,353	36,762,455	36,151,909	37,523,529
Commercial auto liability	10,666,889	10,809,661	10,373,070	10,746,525	10,091,916
Commercial auto physical damage	3,365,218	3,355,650	3,508,189	3,583,772	3,523,621
Total	$106,159,789	$104,722,495	$107,831,784	$106,524,646	$110,915,270
(1) Losses occurring within a fixed period, whether or not adjusted or paid during the same period, on a direct basis before reinsurance. Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.

THE SHARED/RESIDUAL MARKET AND NONSTANDARD MARKETS

All states and the District of Columbia use special systems to guarantee that auto insurance is available to those who cannot obtain it in the private market. Each type of system is commonly known as an assigned risk plan, although that term technically applies to only one type of plan. The assigned risk and other plans are known in the insurance industry as the shared, or residual, market. Policyholders in assigned risk plans are assigned to various insurance companies doing business in the state. In the voluntary, or regular, market, auto insurers are free to select policyholders.

The percentage of vehicles insured in the shared market is dropping, in part because of the evolution of the nonstandard sector of the voluntary market. The nonstandard market is a niche market for drivers who have a worse than average driving record or drive specialized cars such as high-powered sports cars and custom-built cars. It is made up of both small specialty companies, whose only business is the nonstandard market, and well-known auto insurance companies with nonstandard divisions.

Until the mid-1960s, most drivers who did not meet an insurance company’s “standard” or “preferred risk” underwriting criteria could only find coverage in the shared market, where prices are generally much higher and insurers pool or share the profits and losses. With advancements in computer technology that made it easier to set appropriate prices for smaller and smaller risk categories, some insurers began to specialize in insuring drivers with marginally bad driving records. By the late 1990s the nonstandard market accounted for about one-fifth of the total private passenger auto insurance market. This has held steady. A 2008 Conning study found that in 2006 auto insurers specializing in nonstandard private passenger auto insurance had direct premiums written of $36.9 billion, representing 22 percent of the total private passenger auto insurance market.

PRIVATE PASSENGER CARS INSURED
IN THE SHARED AND VOLUNTARY MARKETS, 2006

State	Voluntary	Shared market	Total	Shared market as a percent of total
Alabama	3,223,439	56	3,223,495	0.002%
Alaska	412,301	582	412,883	0.141
Arizona	3,879,340	124	3,879,464	0.003
Arkansas	1,985,321	11	1,985,332	0.001
California	22,736,663	18,364	22,755,027	0.081
Colorado	3,437,556	4	3,437,560	(1)
Connecticut	2,398,906	1,777	2,400,683	0.074
Delaware	599,916	216	600,132	0.036
D.C.	218,832	1,082	219,914	0.492
Florida	11,290,231	46	11,290,277	(1)
Georgia	6,620,325	12	6,620,337	(1)
Hawaii	771,419	4,973	776,392	0.641
Idaho	1,262,950	90	1,263,040	0.007
Illinois	7,669,072	2,256	7,671,328	0.029
Indiana	4,322,560	22	4,322,582	0.001
Iowa	2,356,750	30	2,356,780	0.001
Kansas	2,268,293	1,999	2,270,292	0.088
Kentucky	2,924,688	583	2,925,271	0.020
Louisiana	2,728,135	-44 (2)	(2,728,091	-0.002
Maine	1,030,250	197	1,030,447	0.019
Maryland	3,704,436	83,931	3,788,367	2.215
Massachusetts	3,955,971	198,644	4,154,615	4.781
Michigan	6,287,337	2,231	6,289,568	0.035
Minnesota	3,639,668	-8 (2)	3,639,660	(1)
Mississippi	1,810,863	201	1,811,064	0.011
Missouri	4,029,002	95	4,029,097	0.002
Montana	760,258	435	760,693	0.057
Nebraska	1,453,435	11	1,453,446	0.001
Nevada	1,704,944	36	1,704,980	0.002
New Hampshire	877,237	1,372	878,609	0.156
New Jersey	5,105,641	43,248	5,148,889	0.840
New Mexico	1,360,649	128	1,360,777	0.009
New York	9,030,086	153,241	9,183,327	1.669
North Carolina	5,229,367	1,583,475	6,812,842	23.243
North Dakota	574,037	0	574,037	(1)
Ohio	7,939,167	0	7,939,167	(1)
Oklahoma	2,621,074	179	2,621,253	0.007
Oregon	2,639,391	12	2,639,403	(1)
Pennsylvania	8,377,861	36,506	8,414,367	0.434
Rhode Island	648,892	26,429	675,321	3.914
South Carolina	3,132,147	2	3,132,149	(1)
South Dakota	650,544	-1 (2)	650,543	(1)
Tennessee	4,095,199	63	4,095,262	0.002
Texas	NA	NA	NA	NA
Utah	1,691,730	7	1,691,737	(1)
Vermont	468,847	1,169	470,016	0.249
Virginia	5,893,097	4,604	5,897,701	0.078
Washington	4,318,157	0	4,318,157	(1)
West Virginia	1,261,544	224	1,261,768	0.018
Wisconsin	3,599,727	-2 (2)	3,599,725	(1)
Wyoming	473,613	4	473,617	0.001
United States	179,470,868	2,168,616	181,639,484	1.194%
(1) Less than 0.001 percent. (2) Negative numbers represent vehicles owned by drivers who were rejected or cancelled. NA=Data not available. Source: Automobile Insurance Plans Service Office.

In 2006 (latest data available) 1.2 percent of vehicles were insured in the shared market, compared with 2.9 percent in 1996.
The number of vehicles in the shared market nationwide fell 7.5 percent in 2006.
North Carolina has the highest percentage of cars in the shared market, 23 percent, followed by Massachusetts with 5 percent and Rhode Island with 4 percent.
While North Carolina, Massachusetts and New York have the most vehicles in shared market plans, the number of cars fell in 2006 by 28.3 percent in New York and 19.5 percent in Massachusetts compared with 2005. The number of cars in North Carolina’s plan rose 2.4 percent from 2005 to 2006.

COLLISION LOSSES

The chart below shows the claim frequency, average loss payment per claim and average loss payment per insured vehicle year under collision coverage for recent model vehicles. The last item factors in both claim frequency and the average loss payment per claim. This combination is a measurement of overall insurance losses.

The claim frequency is expressed as a rate per 100 insured vehicle years. A vehicle year is equal to 365 days of insurance coverage for a single vehicle.

COLLISION COVERAGE INSURANCE LOSSES IN YEARS SINCE INTRODUCTION,
2005-2007 MODEL YEAR PASSENGER VEHICLES

	2005	2006	2007	2005-2007
Claim frequency per 100 insured vehicle years
Passenger cars and minivans	7.9	8.4	8.4	8.1
Pickups	5.7	6.2	6.2	5.9
Sport-utility vehicles	5.9	6.2	6.2	6.0
All passenger vehicles	7.0	7.5	7.5	7.2
Average loss payment per claim
Passenger cars and minivans	$3,984	$4,135	$4,172	$4,049
Pickups	4,469	4,522	4,552	4,493
Sport-utility vehicles	3,913	3,795	3,639	3,851
All passenger vehicles	4,026	4,116	4,075	4,059
Average loss payment per insured vehicle year
Passenger cars and minivans	$315	$346	$351	$328
Pickups	253	279	282	263
Sport-utility vehicles	231	235	227	232
All passenger vehicles	283	308	307	293
Source: Highway Loss Data Institute.