You may know that drivers living in densely populated metropolitan areas pay more for car insurance than drivers living in more rural parts of the country. But a new study indicates certain U.S. metro areas are far more expensive than others.
An August 2014 Quadrant Information Services study, commissioned by insuranceQuotes.com, examined the average cost of auto insurance premiums in the 25 largest U.S. metro areas, and some of the results were staggering.
For instance, in the Detroit metro area, drivers pay a whopping 165 percent more than the national average for car insurance.
Meanwhile, in the area of Charlotte, N.C.-Concord, S.C., drivers pay 43 percent less than the national average for car insurance. And there are many variables in between.
Auto insurance premium variability by metro area
According to the National Association of Insurance Commissioners (NAIC), the average annual cost of car insurance nationwide was $797 in 2011 -- the most recent data available. But when it comes to examining the average cost of car insurance on a smaller scale, not all metro areas are created equal.
According to the study, the following five metro areas, on average, have the most expensive annual auto insurance rates in the country (by percentage above the national average)
1. Detroit-Warren-Ann Arbor, Mich. — 165 percent
2. New York, N.Y.-Newark, N.J.-Conn.-Pa. — 36 percent
3. Miami-Fort Lauderdale, Fla. — 34 percent
4. Los Angeles-Long Beach, Calif. — 25 percent
5. Atlanta-Athens, Ga. — 17 percent
Meanwhile, the following five metro areas, on average, have the least expensive auto insurance rates in the country (by percentage below the national average):
1. Charlotte, N.C.-Concord, S.C. — 43 percent
2. Cleveland-Akron-Canton, Ohio — 31 percent
3. Pittsburgh-New Castle, Pa. — 24 percent
4. St. Louis-St. Charles, Mo. — 18 percent
5. Chicago-Naperville, Ill.-Ind.-Wis. — 16 percent
According to Eli Lehrer, president of the nonprofit research group The R Street Institute, there are several factors that influence these rates, including population density.
"There is definitely correlation between population density -- and thus traffic density -- and insurance rates," Lehrer says. "When you have more cars on the road, you have a greater likelihood of accidents and insurance claims. That's why you see really crowded cities like Los Angeles and New York near the top of the list, while cities like Charlotte and Cleveland are near the bottom."
What factors affect your car insurance rate?
Consider, for instance, Miami, which is the third most expensive metro area in the country according to the study. Lynne McChristian, Florida representative for the Insurance Information Institute, says this is most likely a direct result of accident and theft statistics.
According to McChristian, Miami-Dade County (with a population of 2.5 million) had the highest accident rate in the state, with a three-year average of more than 46,000 vehicle crashes between 2010 and 2013, an increase of more than 20 percent over that three-year period.
By comparison, Broward County (the second most populous county in Florida with a population of 1.8 million) had 19,000 fewer crashes, on average, over the same time frame.
"You have lots of people, lots of cars and lots of opportunities for accidents," McChristian says. "And you also have a lot of opportunities for auto theft, particularly of high-end vehicles, which are abundant in Miami."
What's more, according to 2012 data from the Insurance Information Institute (the most recent available), Florida has the second highest rate of uninsured drivers in the country, and McChristian says "most of those drivers are concentrated in metro areas."
According to the NAIC, the costs of uninsured motorists are always “passed along to the public in the form of uninsured motorist’s coverage.”
Finally, Lehrer says differences in state-by-state insurance regulations play a significant role in how much drivers are charged for auto insurance.
"Places with more intense insurance rate regulations don't have lower rates in general," Lehrer says. "Metropolitan areas centered in Illinois -- where there's no rate regulation -- and Ohio -- where there's very little -- have lower average rates than those in California, where rates are regulated in great detail."
Lehrer says state regulation is also the reason why the Charlotte metro area came in at the bottom of the list.
According to Lehrer, North Carolina still requires all insurers to set rates through a rate bureau. This means all insurers must follow a single rate plan throughout the entire state. They can deviate from this rate plan, but only in ways that reduce rates, which tends to "compress" the rates throughout the state.
"In other words, rates are raised in less dense areas of the state in order to keep them lower in more dense regions," Lehrer says.
Why is Detroit so expensive for car insurance?
The most notable outlier is the Detroit metro area, where drivers pay far more for auto insurance than in any other region in the country.
The reason for this is quite simple, says Lori Conarton, communications director for the Insurance Institute of Michigan.
According to Conarton, Michigan is a no-fault auto insurance state, which means each insurance company compensates its own policyholders for the cost of injuries regardless of who's at fault in the accident. This benefit is known as personal injury protection (PIP).
What's wholly unique about Michigan, however, is that state law provides unlimited lifetime coverage for medical expenses resulting from auto accidents, making insurance very expensive.
"No other state in the country provides lifetime medical benefits, which means the cost of medical treatment plays a big role in what people pay for auto insurance in Michigan," Conarton says.
Consider, for instance, that Conarton says the average personal injury claim in Michigan increased from $20,000 in 2003 to $46,000 in 2013. According to Conarton, this is a result of continually increasing health care costs as well as longer life expectancies.
"Since younger people are injured more frequently in auto accidents than older drivers, the cost of covering a lifetime of medical expenses could easily climb into the millions-of-dollars range," Conarton says.
The combination of Michigan's unique state insurance law plus the generally higher cost of insuring metro-area drivers is a perfect storm of sky-high premiums.
Why are Washington D.C.’s car insurance costs so low?
One of the study's most perplexing findings was that drivers in the Washington, D.C.-Baltimore, Md.-Arlington, Va., metro area can expect, on average, to pay 6 percent less than the national average for car insurance
This was particularly surprising since D.C. is often touted as one of the most expensive places in the country to obtain auto insurance. In fact, according to the NAIC, the District of Columbia came in second behind New Jersey in the association's 2011 ranking of the top 10 most expensive states for car insurance.
According to Philip Barlow, associate commissioner of insurance for the D.C. Department of Insurance, Securities and Banking, the reason the District of Columbia fared so well is because the Quadrant study was comparing it to other metro areas as opposed to other states.
"Where D.C. always ranks high is when studies compare our rates to other states. But the District isn't really comparable to other states," Barlow says. "Washington, D.C., is the only jurisdiction in the country that's entirely urban, so when you look at what drivers here pay for auto insurance compared to other states, it gives a misleading impression."
For instance, drivers in New York City pay a much higher premium than drivers in other parts of the Empire State.
So when a study looks at the average insurance premium paid across the entire state, the rural areas of New York balance out the higher costs paid by those living in the Big Apple.
"Auto insurance is where you find the biggest difference between urban and rural rates, but we have no rural areas to balance us out. So whenever there's a state-by-state comparison we just expect to always be right at the top," Barlow says. "I'm not surprised that when you look at our rates against the backdrop of other urban regions we come out somewhere in the middle."
View the press release here.
Methodology: Averages are based on a driver with a bachelor’s degree who drives 15,000 miles a year and who has had no breaks in coverage, a $500 collision and comprehensive deductible, state minimum liability coverage and full PIP coverage.