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Determining Factors

Your choices can, in part, affect your rates. For one thing, decisions like the type of car you drive, your attitude toward driving -- how safe you are on the road, the number of accidents you're involved in, whether you get tickets and violations -- all play a factor in your auto insurance premium. So, consider all your choices. One place to start is by taking a good look at the cost of insuring a car before you buy it.

What Other Factors Affect Your Rates?
But what other factors drive up the cost of insurance coverage? The cost of coverage is determined by the cost of paying claims. Here are some key factors that drive up the cost of claims overall, and thus raise auto insurance premiums for everyone. (Most use the mid to late 1980s as a benchmark because these were pretty good years for the insurance industry, void of the disastrous fires, floods, hurricanes and earthquakes experienced more recently.)

Insurance companies work closely with state vehicle licensing authorities and state & federal law-enforcement agencies to improve auto titling laws.

(1) Lawsuits
One of the most significant factors affecting claims costs is the tort system. From 1985-88, paid claims for bodily injury liability -- the part of auto insurance that is most affected by the tort system -- rose more than 13 percent a year. Fourteen of the 15 states with the highest auto insurance premiums were also among the 15 states with the highest bodily injury paid claim costs, according to the Insurance Information Institute (I.I.I.).

Additionally, the number of suits being filed is increasing. Since 1981, auto lawsuit filings in California have increased by more than 50 percent. Because insurers are obligated to pay defense costs even in minor or frivolous lawsuits, increases in filing law suits mean increases in their cost of doing business.

And the amount of judgments awarded continues to mount, especially in non-economic areas like pain and suffering. In fact, on average, 60 percent of all liability claim dollars go to pay non-economic damages.

Insurers advocate uniformly stringent vehicle licensing and registration laws.

(2) Medical Costs
Rising medical costs are contributing to the increases in bodily injury liability claim costs. In general, medical costs have been rising at a rate more than twice the general inflation rate. On the positive side, increased medical technology and improved rescue and life saving techniques result in fewer deaths, but they also drive up the cost of medical care.

(3) Car Repair Costs
It costs more to fix cars these days, and that means higher claim costs. As cars have become more sophisticated through advancements like fuel injection, unibody construction and on-board computers, they also have become more expensive to repair in the event of an accident.

(4) Theft & Fraud
Motor vehicle theft is the fastest growing crime countrywide, according to the III. Fraud, a more sophisticated form of theft, is a major problem for insurers. According to the National Insurance Crime Bureau, fraud costs property and casualty insurance companies more than $20 billion a year, that's equal to 10 percent of all property and casualty claims paid industry wide.