Policy Documents

State Efforts to Address Urban Auto Insurance Costs

October 15, 2005

For the last three decades, if not longer, the impact of automobile insurance rates on policyholders has been a topic of discussion and controversy in various parts of the nation.  Interest in this area no doubt stems from rising losses that have resulted in higher insurance premiums for the policyholder.  This is particularly true in urban communities, as the cost of auto insurance is typically higher in metropolitan areas due to their higher cost of living, greater traffic density leading to more crashes, more expensive health care and repair costs, higher vehicle theft rates, and greater levels of claiming behavior.  In an attempt to keep rates more affordable, especially for those living in the cities, some regulators and legislators have attempted over time to implement different types of initiatives to address the high cost of auto insurance in urban areas.  To be successful, these efforts must be targeted to the factors that lead to higher urban auto insurance rates mentioned earlier. 

There have been a number of varying proposals raised in different states.  This paper, prepared by the Property Casualty Insurers Association of America, offers examples of potential solutions that have been put into place as a remedy to alleviate affordability concerns in urban areas (in some cases, the entire state) and what the impact of these changes has been.  Some have been met with success, while some have had a negative impact.  Table 1 is a summary of these reforms and their impact.  Most have resulted in positive effects such as a reduction in losses, hence a reduction in rates, an increase in the number of insured drivers, or greater availability of insurance provided to consumers.  Some of the more successful programs are implementing health care cost controls, lowering coverage limits, utilization of fee schedules, eliminating duplication of recoveries, and greater anti-fraud fighting efforts.