It’s no surprise that young drivers pay more for car insurance than any other demographic—and for good reason. According to the federal Centers for Disease Control and Prevention (CDC), crash rates per mile driven for 16- to 19-year-olds are four times higher than those of older drivers.
What’s more, National Highway Traffic Safety Administration (NHTSA) data shows that traffic crashes are the leading cause of death for teens, accounting for one third of all deaths of 16- to 19-year-olds.
Even though teen drivers typically are the riskiest—and most expensive—to insure, a new study finds that the price of adding a teen driver to an existing auto policy varies widely from state to state.
The study, commissioned by insuranceQuotes.com, examined the economic impact of adding a young driver between the ages of 16 and 19 to a family’s existing car insurance policy. The results were as perplexing as they were intriguing to insurance analysts and experts.
“It’s usually cheaper to add a teen to his or her parents’ policy rather than buy a separate policy for the young driver. But I’ve never seen the figures broken down this way before,” says Mike Barry, spokesman for the nonprofit Insurance Information Institute. “The numbers were pretty fascinating.”
How much is car insurance for young drivers in your state?
According to the study, U.S. families who add a young driver to their existing auto policy will see an average annual premium increase of 84 percent (or about $2,000). However, there are several states that buck the national average.
The following five states showed the greatest average premium increase when adding a teen driver:
1. Arkansas — 116 percent increase
2. Utah — 115 percent increase
3. Wyoming — 112 percent increase
4. Alabama — 111 percent increase
5. Idaho — 107 percent increase
Meanwhile, the following five states, on average, showed the smallest percentage premium increase by adding a teen driver to an existing auto policy:
1. Hawaii — 18 percent increase
2. North Carolina — 59 percent increase
3. New York — 62 percent increase
4. Massachusetts — 65.9 percent increase
5. Montana — 66.06 percent increase
Young drivers and insurance premium increases
“I was surprised a little bit by these findings,” says Bob Hunter, former Texas Insurance Commissioner and current director of insurance at the D.C.-based Consumer Federation of America, a consumer advocacy organization. “I would’ve expected most states to fall within a more tightly knit range. (The study) raises more questions than answers.”
For instance, adding a teenage driver to an adult’s auto policy in Arkansas will result in an average annual premium increase of 116 percent. But in Hawaii, the average increase is just 18 percent. And there are many variants in between.
Age also plays a significant factor in premium increases. For instance, the average increase is highest for 16-year-olds (99 percent) and diminishes a bit each year thereafter. A married couple adding a 17-year-old can expect to pay 90 percent more for their car insurance. An 18-year-old costs 82 percent more and a 19-year-old costs 65 percent more.
The premium difference is also significant between males and females. For instance, adding a teenage male to a married couple’s policy will result in an average premium increase of 96 percent. Meanwhile, the average increase for adding a female teen driver is 72 percent.
“Across the board you see young men paying more for insurance, which makes sense,” Barry says. “Statistically, young men are riskier drivers which means they’re, on average, more expensive to insure. That shouldn’t be a surprise to people.”
The potential reasons behind why premiums increase after any teen is added are numerous and nuanced, Barry says. They stem from many factors, including state geography, local driving patterns, and how insurance is regulated in that state.
“Different state governments have passed different laws regarding insurance in their states,” says Jeremy Wilkinson, spokesman for the National Association of Insurance Commissioners, adding that this leads to rate variation between states.
How the cost of car insurance is regulated
The most obvious outlier here is Hawaii, where adding a teen to an existing auto policy will result in an average premium increase of just 18 percent.
According to Gordon Ito, commissioner of the Hawaii Department of Commerce and Consumer Affairs’ Insurance Division, this small increase is because of a unique state law.
According to Ito, Hawaii is the only state that doesn’t allow insurance providers to consider age, gender or length of driving experience when determining premiums, which means teens really don’t pay much more than adults for auto insurance. And this, some experts say, points to a possible trend in states that have more tightly regulated insurance markets.
“I think there’s a pretty obvious pattern to this data,” says Eli Lehrer, president of the nonprofit research group The R Street Institute. “The states with the smaller increases for adding a teen are states that tend to be much more restrictive when it comes to the factors insurers can use when determining rates. For instance, in North Carolina, insurance companies are not allowed to use age or gender.”
This theory makes sense to Nancy Olsen, consumer advocate for the Wyoming Department of Insurance.
“We don’t have a rating authority in Wyoming, so insurance companies can decide on their own how and what they charge youthful drivers,” Olsen says. “(This) may be one of the reasons we ranked so high on the list.”
According to Lehrer, this isn’t necessarily a bad thing.
“Teens are the riskiest drivers to insure, and when you see a very small (difference) between having a teen on your policy versus not having a teen, those states are probably overcharging other drivers to make up the difference,” Lehrer says.
Lehrer isn’t alone in this assessment. According to a 2012 study by the industry-backed Insurance Research Council, states with the most conservative regulatory environments tend to have the most expensive auto insurance rates.
The study found that states with rate regulation show significantly higher average costs for claims and an increase in insurance claim frequency in general.
Hunter disagrees with this assessment. He points out that Illinois, for instance, is the most liberally regulated state in the country (since insurers are free to set rates however they please and are not overseen by the state’s insurance department), and yet an auto premium will rise just 90 percent when a teen is added to the policy. Meanwhile, California is considered one of the strictest states when it comes to rate regulation (for instance, banning credit scores as a rating factor), and the differential there is 9 percent.
“Most states don’t regulate insurance rates all that much, so I don’t see how that could play a significant role in these findings,” Hunter says.
Factors that determine car insurance premiums
When it comes to determining premiums, the more miles driven, the riskier the driver is to insure. And this, says Arkansas Insurance Department deputy commissioner Dan Honey, may have something to do with the study findings.
Indeed, the list of states with the five greatest percentage increases is comprised of states that are mostly rural. But this correlation also raises new questions for Lucas Hamilton, communications director for Montana’s Office of the Commissioner of Securities and Insurance.
“Frankly, it’s a pretty confusing way for the numbers to shake out,” Hamilton says. “Our neighbors in Idaho and Wyoming have such a high increase and yet we don’t, even though they share our geographic and cultural landscape. It’s really hard to say why this disparity exists.”
Barry points out that crash data may also play a roll in state-by-state car insurance variability. According to a 2011 CDC report, most traffic deaths occur in rural areas, and death rates from car crashes progressively increase the more rural (i.e. less populated) an area is.
“It’s really not surprising when you think about it,” says Russ Rader, Insurance Institute of Highway Safety spokesman. “In rural areas, people are generally driving at higher speeds, which means that when they crash, the accident is often more severe.”
Weedin agrees with this conclusion.
“If you’re driving somewhere in Utah or Arkansas, you have long stretches of open road,” he says. “Mix that with speed and youthful inexperience, and you can see why it may cost more to insure a teen in some of these rural states.”
3 tips to reduce the cost of car insurance
No matter where you live, follow these tips to save money on insurance when you have a young driver on your policy:
1. Buy your young driver an older car.
Getting an older car costs less than a new car – and it can be cheaper to insure.
“Consider whether or not you need collision coverage,” says Jim Whittle, assistant general counsel and chief claims counsel atthe American Insurance Association. “That covers the repair cost of the car, which you may not need for an older vehicle. You could save a lot by dropping collision and only buying liability coverage.”
2. Make sure your young driver has a safe car.
Rader says premiums for collision and comprehensive coverage will be lower if your teen drives a safe car that has little value since it costs less to repair.
Rader adds: “Larger or mid-sized family sedans…are not only best for safety, but they can also reduce the cost of insurance.”
3. Find out if your young driver is eligible for discounts.
According to Richard McGrath of McGrath Insurance Group, most insurers will discount premiums for teens who maintain at least a B average in school and if they take a recognized advanced driver training course in addition to driver’s education.
“The real key, though, to keeping premiums low for teen drivers is to drive safely,” McGrath says, adding that if your teen causes a collision, it could increase your overall insurance costs by up to 75 percent.
“That’s a heavy hit, no matter what state you live in,” McGrath adds.
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