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When Will Auto Insurance Rates Go Down?

There’s been much talk lately about how Obamacare may reduce the cost of auto and worker’s compensation insurance. The reason given is that with broader healthcare coverage, auto and worker’s compensation insurers will not need to pay medical expenses following an accident. That argument sounds logical, but is incorrect for two reasons:

  1. History shows that insurance rate changes defy logic. This is the focus of this post.
  2. The people reporting this anticipated benefit of Obamacare do not understand how insurance works. In an accident involving an automobile, or in the workplace, the auto or workers compensation insurer is still liable, whether or not the person has health coverage.

Let’s forget about how insurance works and get back to the interesting stuff. Have your auto rates gone down yet? They should have. Read on to understand why.

As highlighted in the ValChoice blog post on March 17, 2014, Auto Insurance Rates Increasing at 2x Inflation Rate, we reported that:

  • Miles driven is down 8.9% from 2005, according to the Business Insider, who gets their data from the Department of Transportation. Logically this means accidents are down approximately 8.9%, meaning insurance rates should also be down 8.9%.
  • The slow economy has led to the highest average age of automobiles, ever. This is according to the Automotive News. This is meaningful because insurers pay to fix or replace a car up to it’s market value. Since old cars are worth less than new cars, the cost to insure cars goes down as vehicle age increases. This trend should have resulted in auto coverage going down even more than 8.9% since 2005.

These data points clearly show auto insurance costs have gone down at least 8.9% since 2005. Instead, during this same timeframe the average auto coverage cost has increased 3.4% (using III.org data for 2005 through 2012 and Perr&Knight data for 2013 since III.org data is not yet available for 2013).

When Will Auto Insurance Rates Go Down?

The answer to this important question is, not until there is stiffer competition in the insurance markets. Markets insulated from competitive forces, which the U.S. insurance market is as a result of exemption from federal anti-trust laws, do not behave in the same ways competitive markets behave.

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