Insurance

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Tom and Maria (the couple is fictitious but the names are real) are considering the purchase of a new car. He favors the Dodge Ram pickup but she wants the Dodge Caravan. Who do you think will win?

Well, the odds favor him. According to Reuters News Service, the Dodge Ram pickup was outselling the Dodge Caravan through April, 2007. On the other hand, if their decision is based on insurance cost, the nod will probably go to Maria¡¯s choice.

The list obviously does not include the most expensive autos to insure. The Saleen S7 has a sticker price of about $560,000 and clearly would cost more to insure than any vehicle on our list. However, if you can afford to pay half a million dollars for an automobile, you probably won¡¯t base your purchase decision on its insurance cost. But then, neither will Tom and Maria in all likelihood. Their decision is more likely to be based on things like price, comfort, eye appeal, and vehicle features. Still, considering what one could save over the average life of a car, perhaps insurance cost should be a factor to consider.

The difference in insurance costs between vehicles is based primarily on two factors, the dollar amount of damage a vehicle will sustain and the amount of damage or injury a vehicle can cause. The Insurance Services Office, commonly know simply as ISO, compiles accident and test data to arrive at a method of classifying automobiles according to their damageability and injury-causing potential. Insurance companies use this classification system to adjust their rates to reflect the risk potential of each automobile. While not every insurance company uses the ISO system, the great majority of them do.

To find out which were the most expensive to insure autos in 2007, we took the 20 most popular autos as determined by number sold and priced the insurance in cities across three states, New Jersey, South Carolina, and North Dakota. These three states represent the most, the middle, and the least expensive states respectively for auto insurance according to the Insurance Information Institute (1). We chose cities rather than rural areas because the U.S. Census Bureau reports that 75% of the American population lives in urban areas. Our fictitious insured was a 45 year-old single male, with no accidents or driving points and possessing a college degree. For insurance coverage, we selected liability limits of $100,000 per person, $300,000 per accident, Uninsured Motorists, Personal Injury Protection (where applicable), $500 deductible Collision and Other Than Collision coverage. Our insured drives 5 miles to work one way.

Auto insurance cost has increased 45% over the last fifteen years as the chart below shows (2). While that trend will likely continue in the long run, there may be some relief over the next twelve months. The Insurance Information Institute estimates that the average premium for auto insurance in the U.S. will be $847 per policy in 2007, a $20 savings compared to the average cost in 2006.

(1) Source: http://www.iii.org/media/facts/statsbyissue/auto/

(2) Sources: NAIC Auto Insurance Database Report, U.S. Census Bureau, Insurance Information Institute.

Obviously, not every driver will realize the same savings. Some will see more, some less, depending on their individual driving records, what states they are in and where they are within a state. Still, any saving is good news when you see what is happening with gas prices, food prices, and just about any other prices you care to mention. The Insurance Information Institutes attributes the drop in insurance cost to a lower claims frequency, better success fighting fraudulent claims, and the fact that a large segment of the driving population, the WW II baby boomers, are moving into an age bracket where, statistically, they have a better driving experience.

There are literally hundreds of companies selling auto insurance in the U.S. and, by law, they cannot agree with each other on what they will charge for their coverage. There are 48 other rating jurisdictions in the U.S. in addition to the three that we used and those jurisdictions each have multiple rating territories within them so your insurance cost might be considerably different from the averages mentioned above. Our study was designed to determine the relative cost to insure the 20 most popular model vehicles of 2007 but you will need to check with your insurance agent to find out what it will cost to insure your vehicle. When you do, keep these things in mind:

1. Compare prices. Insurance companies have different underwriting standards and you may be a more attractive risk to one insurer than another.
   
2. Make sure your agent has all the facts. He should know how you regularly use the vehicle. If you drive to work 2.5 miles one way, make sure your agent knows that because many insurers will charge more if the vehicle is driven 3 or more miles to work one way. If your vehicle has special loss control features such as the LoJack Security System, you may be eligible for additional discounts.
   
3. Consider what coverage you really need. Have your insurance policies had $100 physical damage deductibles over the years because ¨C well, because that¡¯s what you¡¯ve always had? If you can afford to assume a little more of the risk yourself, you might be able to reduce your premium significantly by taking a higher deductible.