Auto Insurance Rates to Climb By 1.5% in 2005

The cost of auto insurance is expected to rise by just 1.5 percent in 2005, the smallest increase in five years, according to the Insurance Information Institute.

The average cost for auto insurance nationwide for 2005 is estimated at $870–an increase of $13 per vehicle from last year, according to III. The projected increase represents a continued slowdown from 2004 when auto insurance costs rose by just 2.8 percent.

“The price of auto insurance is increasing by little more than one-half the rate of inflation,” said Robert Hartwig, senior vice president and chief economist of the III. “Many people who, for example, drive safe cars, have excellent safety records and good credit-based insurance scores may see their rates go down.”

Hartwig cited the declining number of auto accidents, safer cars, new anti-theft technology and fraud-fighting efforts as key factors behind the trend. However, he observed that rising costs for medical care and vehicle repairs and higher jury awards remain a problem.

“Unfortunately, while drivers today are filing fewer claims, those that are filed cost more,” Hartwig said. “It costs more to repair cars, particularly following accidents involving sport utility vehicles.”

This year insurers will pay between $15 billion and $20 billion in medical claims, the III reported. Higher costs for hospitalization and pharmaceuticals, and state regulations that permit abuse of medical treatments and associated legal costs are also to blame. “Collectively, these high costs more than offset the decline in accident frequency, pushing overall rates upward,” Hartwig said.

Medical costs have played an important factor in the auto market, according to the group’s report. Each year more than two million car accidents involve injuries. More than one in four auto accidents resulted in injury claims in 2003, according to the Insurance Research Council. Typical costs for treating an auto accident victim range from $6,000 to $9,000, but can easily run into the tens of thousands of dollars.

Higher repair costs, reflecting insurers’ reduced use of generic crash parts, are another significant cost driver today–rising at nearly double the overall rate of inflation. Higher jury awards in vehicular liability cases continue to put additional upward pressure on auto insurance rates, according to III. The average jury award in auto liability cases was $220,680 in 2002, according to the most recent available data from Jury Verdict Research.

“About 60 percent of auto premiums paid in 2004–more than $80 billion–were for liability coverage,” Hartwig said. “As we look at 2005 and into 2006, we see this trend continuing.”

Auto theft is another significant factor that affects rates. According to preliminary data from the Federal Bureau of Investigation’s Uniform Crime Report, the number of auto thefts rose by 1.1 percent from 2002 to 2003, the fourth consecutive annual increase.

Topics Auto