For Many States, Trimming Car Insurance Costs An Ongoing Battle

By: - July 21, 1999 12:00 am

WASHINGTON — In New Jersey, the certainty of paying high auto insurance premiums ranks right up there with death and taxes.Garden State motorists pay an annual average of $1,292.76, tops in the nation, according to the National Association of Insurance Commissioners.

New York, Hawaii, Rhode Island and Connecticut drivers can relate. Their annual average insurance rates are ,113.55, ,033.76, ,000.45 and $982.66 respectively, ranking them just behind New Jersey. Their premiums compare with a national average of $798.08 for policies carrying liability, collision and comprehensive coverage.

New Jersey’s attempts to keep auto premiums in check have angered insurance companies.

Many insurance companies fled the state in recent years, frustrated by New Jersey’s strong-arm regulatory efforts to get auto rates down. A law that went into effect this year overhauls the car insurance system and is designed to eventually reduce most auto premiums by 15 percent.

It has drawn drawn complaints from insurers and motorists alike that it is too convoluted for most people to understand.

Auto insurance rates declined nationwide last year for the first time in 26 years, according to the Insurance Information Institute. Several factors, including older, more cautious baby boomer drivers and competition between insurance companies, drove the cost of auto coverage down 2.8 percent in 1998.

The Institute projects a 4.5 percent drop for this year.

Despite the slight rate decrease, consumers spent 0.5 percent more on auto insurance in 1998 than in the previous year, largely due to the popularity of sport-utility vehicles, which cost more to insure.

Nineteen states have average annual insurance costs above the national average, with the nineteenth state, Florida, coming in at $814.18. States take a proactive role in developing programs to soften the pain of auto insurance rates. No state wants uninsured motorists swarming its highways simply because auto insurance is unaffordable.

There’s another reason states are so concerned about car insurance — voters steamed over their auto premiums have a way of picking up the phone and dialing the state house.

“Citizens know that legislators pass laws that affect” car insurance, says Jim Newins with the Kansas Insurance Department. “It’s just one of these flash point issues.”

Kansas gets off relatively easily, with its residents paying an average auto insurance premium of $631.85, ranking the state 38th.

Elsewhere this year, lawmakers have:

  • Crafted a measure in California to lower car premiums for residents of South-Central Los Angeles, where minimum coverage costs $1,882 a year.
  • Defeated a proposal in Connecticut to force insurance companies to stop charging urban drivers higher rates than suburbanites. The effort on behalf of urban drivers rankled suburbanites, who helped scuttle the measure in the legislature.

As West Virginia discovered, when car insurance premiums drop, sometimes it can hurt a state. When several insurers cut premiums for commercial and car insurance, collections on West Virginia’s premium tax fell from $99.6 million during the 1996-97 fiscal year, to $98.3 million the following year.

States started to play a more active role in regulating auto premiums and the insurance industry in general in the late 1980s. At the time, there were rumblings in Congress that the federal government might be better suited to do the job.

The result was a “tremendous push, going back to the early 1990s, to strengthen state insurance regulations,” says Daniel Kelso, with the Ohio Insurance Institute. “I think from a state perspective, they would rather regulate industries, as opposed to having the federal government do it.”

Some states have been less successful than others. An example is Arizona, ranked ninth among the states with average annual car insurance premiums of $901.65. Efforts in Arizona to tighten regulation have historically failed, says Al Sterman, vice president of the Arizona Consumers Council.

Ultimately, factors beyond the control of lawmakers and regulators dictate that some states will always have lofty auto insurance costs. There are 4.4 million registered vehicles in New Jersey.

“We’ve got a lot of cars, and as a result of that, we’ve got a lot of accidents,” says John Tiene of the New Jersey Information Service, an insurance business trade organization.

Residents of South Dakota, Vermont, Idaho, North Dakota and Maine have fewer cars, more wide open space and fewer accidents. Those states are ranked last in annual car insurance premiums at $595.41 for South Dakota, Vermont, $592.97, Idaho, $577.07, North Dakota, $545.50, and Maine, .81.

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