Insurance Rates Up Again

Hold onto your checkbook; another round of car insurance price increases is expected. Rising costs of medical care, vehicle repair, jury awards, automobile theft, and fraud are expected to drive up auto insurance rates by six percent in 2004, according to an analysis by the Insurance Information Institute (III).

While this probably won't make you feel any better, the projected increase represents a slight moderation from 2003 when auto insurance costs are estimated to rise 8.5 percent. The average cost for auto insurance nationwide for 2004 is estimated to be $898 -- an increase of $51 per vehicle from this year.

"Rising claims costs continue to fuel increases in auto insurance nationally," said Robert Hartwig, senior vice president and chief economist of the III. "It costs more to repair cars, particularly following accidents involving sport utility vehicles. This year insurers will pay between $15 and $20 billion in medical claims. Higher costs for hospitalization and pharmaceuticals, and state regulations that permit abuse of medical treatments and associated legal costs are also to blame."

When it comes to auto insurance rates, medical costs continue to play an important factor. Each year there are more than two million car accidents involving injuries. Typical costs for treating an auto accident victim range from $6,000 to $9,000, but those costs can easily run into the tens of thousands of dollars. The cost of auto injury claims is rising by as much as 20 percent in some states.

Higher repair costs are another significant driver of increased costs. Average repair cost has risen two to three times the overall rate of inflation in a number of states. One reason for this is the suspension of the use of "generic" parts in the repair of damaged vehicles in favor of "genuine" manufacturer parts. This is a factor that could ultimately add $4 to $5 billion annually to the cost of auto insurance, according the III, because name brand parts often cost 30 percent to 70 percent more than their generic equivalent, even though generic parts are of like kind and quality. (Car manufacturers heartily dispute the "like kind and quality" claim.)

We can also lay some blame on the courts. Sharply higher jury awards in vehicular liability cases are putting additional upward pressure on auto insurance rates. The average jury award in auto liability cases rose from $187,000 in 1994 to $323,000 in 2001 -- an increase of 73 percent, according to the most recent available data from Jury Verdict Research.

Finally, there is the old devil: crime. Auto theft is another significant factor that affects rates. According to preliminary data from the Federal Bureau of Investigation's Uniform Crime Report, the number of auto thefts rose by 1.2 percent in 2002, after increases of 5.7 percent in 2001 and 0.7 percent in 2000. An estimated 1.2 million auto thefts were reported in 2001, averaging $6,646 per vehicle or $8.2 billion.

"Auto liability issues are much more important than people realize," noted Hartwig. "About 60 percent of auto premiums paid in 2002 -- more than $80 billion -- were for liability coverage. As we look at 2003 and into 2004, we see this trend continuing."

Fraud and abuse are major problems in some states, such as New York, Florida and Massachusetts. Loopholes in New York's no-fault insurance statutes, for example, will cost the state's drivers an estimated $432 million in 2003 or nearly $1.2 million per day. While the average driver will pay $898 in 2004, according to the III analysis, what individual drivers actually pay varies by state, by insurance company, and by motorist.

Hey, we feel your pain. Next week we will tell you what you can do to limit your own auto insurance costs.

Cleveland-based auto journalist Luigi Fraschini pays car insurance premiums on a highly eclectic variety of vehicles, much to his wife's consternation.