10 states where car insurance really bites your budget

Allie Johnson

Michigan is king of the car industry. It’s also the king of car insurance costs.

A middle-of-the-road policyholder from Michigan shells out 8 percent of annual median household income for car insurance, according to data compiled by CarInsuranceQuotes.com. That’s the highest percentage for any state or the District of Columbia. No. 2 on our list is Louisiana, where a middle-of-the-road policyholder forks over more than 5 percent of median annual household income for car insurance.

Rounding out the top 10 are:

3. Kentucky — 4.548 percent.
4. West Virginia — 4.239 percent.
5. Mississippi — 4.045 percent.
6. Arkansas — 3.660 percent.
7. Delaware — 3.573 percent.

8. New York — 3.542 percent.
9. Nevada — 3.439 percent.
10. Florida — 3.360 percent.

At No. 51 on the list is Massachusetts, where 1.434 percent of median annual household income is spent on car insurance. Preceding Massachusetts in the bottom 10 are:

50. North Carolina — 1.625 percent.
49. Hawaii — 1.634 percent.
48. Alaska — 1.751 percent.
47. Oregon — 1.955 percent.
46. Iowa — 1.973 percent.
45. New Hampshire — 1.988 percent.
44. California — 1.991 percent.
43. Virginia — 1.992 percent.
42. Maine — 1.993 percent.

Many factors affect rates from state to state, according to Bob Passmore, senior director of personal lines at the Property Casualty Insurers Association of America, a trade group representing more than 1,000 insurers. These variables include the costs of car repair and medical care, the amount of insurance fraud taking place, the number of uninsured drivers on the roads and the number of people living in densely populated areas. “When you get more drivers together, they’re going to run into each other more,” Passmore says.

State regulations also play a major role, he says, especially the type of insurance system the state uses – either fault-based or no-fault – and the rules for how that system operates.

‘Michigan is very unique’

Some experts say it’s no surprise that Michigan tops CarInsuranceQuotes.com’s list, with 8 percent of the median annual household income of $56,101 going toward car insurance.

“Michigan is very unique in our auto insurance system,” says Lori Conarton, a spokeswoman for the nonprofit Insurance Institute of Michigan. “It’s really hard when people compare Michigan premiums to other states because (policyholders in other states) are not paying for the same benefits.”

That’s because Michigan is a no-fault state, which means each policyholder must buy personal injury protection (PIP). PIP covers the policyholder’s own medical costs in an accident, no matter which driver is at fault. Also, Michigan is the only state where that coverage includes unlimited lifetime medical and rehabilitation benefits for treatment of car accident injuries.

“If you’re severely injured and paralyzed, and for the rest of your life you need to use physical therapy or have medical equipment, that all gets paid by the auto insurance policy (in Michigan),” says RAND Corp. economist Paul Heaton, who has researched car insurance costs in that state.

Pickup truck driver Tim Johnson lives in Michigan, which is a no-fault car insurance state. “Overall, I think the whole concept of this no-fault thing stinks,” Johnson says.

Conarton says there’s a push in Michigan to let consumers choose whether to buy the current high-dollar PIP with unlimited benefits or less costly PIP with limited benefits. “A lot of people in Michigan, although they appreciate those unlimited benefits, it is getting to where it’s hard to afford them,” she says.

Such no-fault systems originally were meant to keep costs down by slicing the number of expensive lawsuits aimed at determining who was at fault in a car crash. In general, though, these systems haven’t worked out too well, according to Heaton. For example, skyrocketing medical costs, along with consumers’ high use of their insurance benefits, have driven up car insurance costs in Michigan.

“When somebody gets into an auto accident in Michigan, they go see the doctor a lot more, they’re more likely to go to an emergency room and to get X-rays and CT scans,” Heaton says. “It makes sense – if you’ve got the coverage, why not make use of it? But when everyone uses a ton of medical care following an auto accident, that’s expensive.”

Conarton, the Insurance Institute of Michigan spokeswoman, note that the state’s auto insurance rates can seem higher than they really are if you look just at the “base rates” filed by each car insurer that does business in the state. Under Michigan law, car insurers can apply discounts to the base rates; in most other states, car insurers apply surcharges to the base rates.

So, for example, in Michigan, car insurer could offer a discount to a customer with a solid credit history but could not add surcharge to the premium of a customer with a poor credit history. By contrast, in many other states, a company might file a “base rate” with the state, then apply a surcharge for a consumer who has poor credit. The result is that in Michigan, consumers almost always end up paying less than the base rates — sometimes far less. In other states, they might end up paying quite a bit more than the base rate.
 
Singing the blues in the Bayou State

Louisiana, the second highest state on the CarInsuranceQuotes.com list, is not a no-fault car insurance state. Instead, it has a traditional fault-based system, also called a tort system. In Louisiana, 5.55 percent of median annual household income of $52,456 goes toward car insurance.

Experts say the big reason for Louisiana’s high car insurance premiums is that while the state has a fairly average number of car accidents compared with other states, it leads the country in injury claims. In Louisiana, 43 percent of accidents involving property damage in 2006 included injury claims, compared with the national average of about 24 percent, according to the Insurance Research Council. “Our bodily injury claims rate is the highest in the country and rates reflect that,” says Jeff Albright, CEO of Independent Insurance Agents & Brokers of Louisiana, a trade group.

Policyholders who file claims in Louisiana also are more likely to hire attorneys than those in many other states, he says.

Albright says extremely high car insurance rates in the New Orleans area skew the rates for the entire state. One reason rates in New Orleans likely are so high, he says, is that its residents tend to be lawsuit-prone and its judges are known for siding with plaintiffs. “The rates in the rest of Louisiana are really pretty similar to the rest of the national average,” Albright says.
   
The good: Massachusetts and North Carolina

On the other end of the CarInsuranceQuotes.com list is Massachusetts, where just 1.43 percent of the median annual household income of $78,653 gets spent on car insurance.

However, three of the five states at the bottom of the list – Massachusetts, Alaska and Hawaii – have median household incomes ranging from $75,000 to $80,000. In some cases, those figures are about $20,000 to $30,000 higher than those in states at the top of the list, such as Michigan, where car insurance takes a disproportionate chunk of the family budget.

But North Carolina sits right behind Massachusetts on the list, with 1.63 percent of income devoted to car insurance based on median annual household income of $52,920 – comparable to the median household income in Michigan.

North Carolina’s low rates can be attributed to several factors, according to Stuart Powell, vice president of insurance operations and technical affairs for Independent Insurance Agents of North Carolina, a trade group.

For one thing, many North Carolinians are not packed together in heavily trafficked big cities. “Our population is pretty dispersed. We have a lot of people who don’t live in urban centers,” he says. For another, the state has a fairly stable, conservative court system that discourages “sensational litigation around automobiles,” he says.

Perhaps most important is this: Instead of insurers setting rates, the North Carolina Rate Bureau — whose membership comprises all insurers licensed to do business there — submits one base rate to the state insurance commissioner. If insurers do not want to insure riskier drivers at those prices, those drivers get sent to the state’s subsidized high-risk pool. Critics of the North Carolina system say it overcharges drivers who have clean driving records to pay for insurance for drivers with bad records – for example, numerous tickets or DWIs.

In North Carolina, “insurers can compete by discounting off the filed rate,” Powell says. “But it’s very difficult for companies to charge higher rates than the filed rate, and most do not try.”
     
What can consumers do about costs?
   
Living in a state or city where car insurance rates squeeze the budget can be tough for consumers – and, experts say, might contribute to high numbers of uninsured drivers, especially in places like Detroit. According to some estimates, as many as half of the drivers in Detroit – where premiums are considerably higher than in other parts of Michigan – are uninsured, Heaton says.

“There are people who, if the rules were different, would purchase a less-expensive policy, but they’re not able to,” says Heaton, citing Michigan’s requirement that all drivers purchase PIP with unlimited lifetime benefits.

Michigan driver Tim Johnson, 52, says he and his wife, Melissa, lived near Detroit a few years ago and paid about $2,170 a year for coverage of their 2000 Saturn L Series sedan and 2007 Chevrolet Monte Carlo. Melissa had bought her Saturn only after asking her agent which type of car would be cheapest to insure. “It was really quite a strain because we were making car payments on both cars, too,” Johnson says.
 
After living in North Carolina for a few years, Johnson returned in the summer of 2012 to Michigan, settling near the city of Lansing. Now, he’s looking for a job and driving a paid-for 1998 Dodge pickup truck that he plans to insure only with liability coverage and the state-required personal injury protection.

“Overall, I think the whole concept of this no-fault thing stinks,” Johnson says. “This is why a lot of us can’t afford to have full coverage on used vehicles.”
   
Shopping for the best rates

Experts say that although consumers can’t do much about state regulations, they can shop around for better rates and take other steps to lower the amount of their income that’s consumed by premiums. Here are five tips:

1. Shop around. The nonprofit Consumer Federation of America recently created a hypothetical consumer, a 35-year-old bank teller with a good driving record, and shopped in 15 major cities for car insurance for her. In one city, quotes for the same insurance for her ranged from $762 to $3,390, the group says.

2. Look into pay-as-you-drive discounts. Usage-based car insurance can drastically cut rates for some consumers, says Philip Reed, senior consumer advice editor at automotive website Edmunds.com. For example, 29-year-old Louisiana resident Chris Dendy snagged a 21 percent discount after he signed up for Progressive’s Snapshot program. The insurance company sent him a device to install in his car, and it monitored his driving, including the number of times he slammed on the brakes and how often he drove. After the insurer determined he was a good driver, it lowered his premium. “I’d recommend it to anybody,” he says of the program.

3. Ask for other discounts. Dendy, who had especially pricy insurance because he lives in New Orleans, was able to cut his premium for his 2011 Mazda2 even further, to about $1,400 a year, by asking for more discounts. He got one just for being a homeowner, without having to bundle his car and home policies. “I wasn’t shy about calling and asking for discounts,” he says.

4. Consider liability only. If your car is at least 5 years old and is paid off, you might think about dropping collision and comprehensive coverage. “It depends on your tolerance for risk and how much of an impact a major accident would have on your budget,” says Joe Ridout, a spokesman for Consumer Action, a nonprofit consumer advocacy group. “But if you’re paying an extra $1,000 a year for full coverage on a car that’s only worth $6,000 or $7,000, that’s probably not a good financial decision for most people.”

5. See whether you have excess coverage.It pays to look carefully at your policy – for example, your collision coverage and comprehensive coverage – to check whether you’ve got coverage that you don’t really need. “The key concept is you want to be protected, you want to be adequately insured, but you don’t want to be unnecessarily paying for lot of insurance coverage that’s redundant or doesn’t apply to you,” Reed says. “Your agent is always going to err on the side of caution, and caution will cost you.”

How we crunched the numbers

CarInsuranceQuotes.com gathered median car insurance data and median household income data from all 50 states and Washington, D.C.

To determine median car insurance rates, CarInsuranceQuotes.com used a proprietary system developed by Quadrant Information Services Inc. that tracks the rates of car insurers in each state. Median car insurance rates were based on actual customer profiles of online car insurance shoppers that can include multiple drivers, multiple vehicles and other variables.

The car insurance were collected in June 2012. The income data came from the 2010 Census.

 

Where car insurance is a real pain in the pocketbook
	State	Median annual household income	Median price of annual car insurance policy	Percentage of household income going toward car insurance
1	Michigan	$56,101	$4,490	8.003%
2	Louisiana	$52,456	$2,912	5.551%
3	Kentucky	$50,392	$2,292	4.548%
4	West Virginia	$48,927	$2,074	4.239%
5	Mississippi	$45,484	$1,840	4.045%
6	Arkansas	$47,049	$1,722	3.660%
7	Delaware	$68,746	$2,456	3.573%
8	New York	$65,897	$2,334	3.542%
9	Nevada	$60,192	$2,070	3.439%
10	Florida	$53,093	$1,784	3.360%
11	District of Columbia	$77,514	$2,570	3.316%
12	South Carolina	$51,704	$1,682	3.253%
13	Rhode Island	$67,814	$2,132	3.144%
14	Arizona	$55,353	$1,724	3.115%
15	New Jersey	$82,427	$2,556	3.101%
16	Oklahoma	$51,958	$1,610	3.099%
17	Georgia	$55,209	$1,632	2.956%
18	South Dakota	$59,987	$1,772	2.954%
19	Pennsylvania	$61,890	$1,828	2.954%
20	Alabama	$50,429	$1,476	2.927%
21	Tennessee	$51,083	$1,452	2.842%
22	Minnesota	$69,625	$1,924	2.763%
23	Missouri	$56,214	$1,550	2.757%
24	Illinois	$65,417	$1,716	2.623%
25	New Mexico	$51,020	$1,306	2.560%
26	Texas	$56,575	$1,420	2.510%
27	Montana	$54,507	$1,354	2.484%
28	Idaho	$52,342	$1,290	2.465%
29	Connecticut	$81,246	$1,984	2.442%
30	Maryland	$83,137	$2,030	2.442%
31	Kansas	$61,013	$1,480	2.426%
32	Colorado	$67,800	$1,562	2.304%
33	Indiana	$55,368	$1,268	2.290%
34	Wisconsin	$62,088	$1,400	2.255%
35	Nebraska	$60,812	$1,348	2.217%
36	Vermont	$62,575	$1,380	2.205%
37	Washington	$67,328	$1,458	2.166%
38	North Dakota	$65,207	$1,384	2.122%
39	Wyoming	$65,841	$1,394	2.117%
40	Utah	$61,618	$1,270	2.061%
41	Ohio	$56,518	$1,128	1.996%
42	Maine	$58,197	$1,160	1.993%
43	Virginia	$72,476	$1,444	1.992%
44	California	$65,481	$1,304	1.991%
45	New Hampshire	$74,634	$1,484	1.988%
46	Iowa	$60,917	$1,202	1.973%
47	Oregon	$56,661	$1,108	1.955%
48	Alaska	$76,962	$1,348	1.752%
49	Hawaii	$76,134	$1,244	1.634%
50	North Carolina	$52,920	$860	1.625%
51	Massachusetts	$78,653	$1,128	1.434%
Sources: CarInsuranceQuotes.com, Quadrant Information Services Inc., U.S. Census Bureau; car insurance data from June 2012; income data from 2010