In most states (California is one exception); auto insurance prices can vary significantly between different cities. It has to do with what the people in insurance call “frequency” and “severity.” In other words, how many accidents (frequency) and how much does it cost to settle them (severity).
Some areas have a greater frequency than others because of:
Population density and congestion – The more people and cars you have on the road, the more accidents that result.
Theft and vandalism rates – Some areas of the state have a greater tendency for these types of crimes.
Commuting and traffic patterns – The way roads are designed can impact the number of accidents.
Then there’s severity. It costs more in some areas than others because of the following:
Greater number of lawsuits – Lawsuits drives up the costs to settle claims. In some areas of your state, there may be more lawyers who are involved in the claims
Repair costs are higher – The costs to repair vehicles can be higher in some areas of the state because the underlying costs to run a shop (rent, taxes, etc.), and labor are greater. These additional costs are passed through to the insurance company when settling the claim.
Medical costs are higher – It can cost more to run a hospital or to pay doctors in some parts of the state. Again, these costs are passed through to the insurance
All of these factors point to more losses and higher costs in urban areas
As an example, vikinginsurance.net have accessed some price comparisons from the state of Wisconsin. The price for auto insurance can be significantly higher in urban areas like DairyLand, versus more rural areas of the state.
In Wisconsin, there can be a 40% difference in price strictly based on where you live. You can also see that the price differential is consistent across companies, even when the actual price is considerably different. In other states, you might see bigger or smaller gaps based on the costs to settle claims.
If you live in Dairyland, you might view this as discrimination. But again, remember the insurance company is just trying to cover their costs. They don’t want to raise the rates for urban dwellers arbitrarily. In fact, if the company could justify a lower price, they would do it in order to write more business. Unfortunately, the loss costs are higher in urban areas.
In a couple of states – namely California – territory (or city rating) is prohibited or restricted, by law. If you live in Los Angeles or San Francisco you are probably jumping for joy – and who could blame you. For starters, the people in Bakersfield, Modesto, and Palm Desert. Using the Texas data for State Farm, you can see what happens when territory rating is prohibited.
You can see the rates charged when insurance companies vary the rates by city or zip code. If this capability is removed, then the rates flatten, and everybody pays the same. So, people in urban rates benefit with lower rates and rates go up in mid-size cities and rural areas. It’s the same everywhere, and with every rating variable. If the companies are regulated (prohibited) from varying the price for a particular segment, then the price flattens. Some people pay less while others pay more. In short, there is no free ride because somebody will pay for the loss costs.
At this point, you should have a high-level understanding of insurance pricing concepts. The insurance companies are indifferent as to how they vary the prices, as long as they are able to make a profit. If the regulators take away a particular tool (i.e., credit, territory, or age) the costs just get spread amongst everyone. This is an argument for less regulation.
What Do You Do if You Have a Claim?
One of the most challenging question to answer and one of the most asked. The reason is that each claim situation is different and each person’s experience will also be different. The answer is not as cut-and-dry here as with some other issues. With that in mind, here are some insights into the claim handling and settlement process.
Value of Your Totaled Car
Can the insurance company give you less than the Blue Book value for your car? Yes. The Blue Book is a guide and is only one source. The company is only required to pay you what your car is worth. They will attempt to establish the value of your vehicle just prior to the accident. The adjuster will use a variety of sources (e.g., dealerships, newspapers, Blue Book, NADA) to determine the value in your area. Adjusters must verify the value from at least two sources.
What should be included in the amount the company gives you for your totaled car? The value of your car plus the sales tax, title and license fees, as long as you replace the car within 30 days.
Damage to your car and you are at-fault: Many of the valuation criteria discussed above apply whether you are at fault or not. The primary differences when you are at-fault are:
Don’t worry for the repairs of your car; your collision coverage will pay for that. The items discussed above regarding getting an estimate or meeting with an appraiser will apply. In addition, the repair shops work may be guaranteed by the company if the shop is an approved vendor. Verify this with the company.
Your insurance rates will go up at renewal
If you have an accident with damages above the deductible, the accident will be recognized. You can anticipate an increase in your renewal premium of 20 – 30%.
If you have rental reimbursement coverage, your use of a rental car will be covered – up to the limits of this coverage. Don’t you have rental reimbursement coverage? You will need to find alternative transportation while your car is in the shop. The insurance company will typically have pre-negotiated rental rates with a car rental company. In fact, in some cases, if you use their designated repair facility, the rental car company may even pick you up at the repair shop.