Conflicting findings by the Bureau of Labor Statistics (BLS) and the National Association of Insurance Commissioners (NAIC) show the deceptive nature of statistics about auto insurance rates in the United States. According to the BLS, between 2004 and 2008, the cost of insuring a car increased 3.4 percent. The NAIC says in the same period rates dropped 6.75 percent. How is that possible? The fault lies in the methodology and, by looking at that, there’s a valuable lesson to be learned by all auto insurance customers about maintaining affordable coverage.
The BLS Auto Insurance Math
The BLS numbers are purely theoretical because the study drew on sample driver profiles from across the nation. Using these imaginary motorists, the researchers asked for quotes from insurance companies and tracked the price fluctuations in those quotes over time. Consequently, these “drivers” could not make changes to their deductibles, alter the level of protection provided by their policies, receive rewards for good driving habits, or go shopping for a cheaper rate.
Insurers set their prices according to a number of criteria, including an individual policy holder’s driving record. In a broader sense, however, if a company suffers a big loss on a major event, they recoup the expense by passing it on to all their customers, who then respond by altering the terms of their individual coverage. The BLS study makes no provision for this give and take between the industry and actual policy holders.
The NAIC Auto Insurance Math
The NAIC, however, surveyed total premiums paid by actual consumers for liability, comprehensive, and collision coverage by state, and divided the total by the number of purchasers. The result was a much more accurate view of real-world auto insurance expenditures. That means that rates did indeed drop approximately 6.75 percent from 2004 to 2008.
There is, however, another factor to consider. Practical experience shows that when consumers keep the same policy with the same company over time, their rates go up. Most people reflexively renew their auto coverage. They do not review the policy terms or track the sources of the total charges. They certainly don’t comparison shop to see if they can obtain a more affordable rate, which is a serious, and often costly, mistake.
Proactive Consumers Get Cheaper Auto Insurance Rates
On an annual basis, consumers should review and adjust their deductibles, and as a car ages, perhaps drop the comprehensive coverage entirely. Older cars are much more likely to be totaled in the event of a collision. Repairs are not inexpensive and insurers would rather declare the car a loss. One or both of these strategies can save drivers as much as 15 to 40 percent a year on their coverage costs.
To get cheaper rates, drivers should also investigate newer insurance products, like low mileage discounts or policies that actively monitor driver behavior via a device installed on the vehicle. In some cases these measures have saved drivers as much as 65 percent on their premiums.
The most important thing, however, is not to renew your auto policy out of habit. Use online tools like quote engines to shop for the most inexpensive policies, and don’t hesitate to negotiate the quoted rates. The worst that can happen is that an insurer says no. Drivers who proactively monitor their auto insurance premiums are the ones who get the cheapest coverage, a fact born out by the conflicting studies published by the BLS and the NAIC.