Are you paying too much for auto insurance? Since rates are going up, you probably feel like you do.
But how would you go about confirming your suspicions?
Looking at average car insurance rates might seem like a great place to start. After all, if your current rate is lower than this average insurance number, that’s probably a good thing, right?
You wouldn’t be the only one to take this approach. Judging by Google data, tens of thousands of people have the same idea every month. Searches for ‘average car insurance’ recently hit a five-year high.
Take a closer look at the average rates and you’ll start to see why they won’t help you assess your own costs.
There are so many factors that affect your insurance premium. It turns out that finding an average that is relevant to you is probably harder than just shopping multiple quotes and picking the best one.
An array of averages
There’s something alluring about averages. Who isn’t curious about comparing themselves to everyone else?
With insurance averages, we can compare cities, states, neighborhoods, types of drivers and learn more about how insurance premiums vary across America.
But pinning down one single average car insurance premium is far from straightforward.
Take something as simple as finding the average car insurance rate in California; you will see an array of numbers, most of them between $1,000 and $2,000, depending on your source.
The average you look at will influence how you feel about your own coverage. But ultimately it could tell you very little about the value of your own coverage.
So what is going on here?
How average car insurance rates are measured
There’s two main ways that average auto insurance premiums are measured. One looks at average expenditures, the other tries to work out average premiums.
Aren’t they the same thing? Not exactly.
The National Association of Insurance Commissioners provides average expenditure numbers broken down by state.
This measures total written premium for liability, collision, and comprehensive coverages divided by the total liability written car-years across every state.
This means how much is being spent on premiums for these types of auto insurance for a year’s worth of insurance per vehicle.
Because that clearly takes some calculation, the most recent figures, published in 2017 are for insurance rates in 2015.
The average car driver?
A lot of other ‘average’ rates you see provide a quote for a specific set of driver characteristics. Those who crunch the numbers assume certain baseline characteristics of the person who would be shopping for insurance: age, gender, vehicle, driving record, amount of coverage required, etc.
This could be something like a 30-year-old single male driving a 2013 Honda Accord EX with a good driving history, or perhaps a married 40-year-old male who commutes 12 miles to work each day in a 2016 Accord.
With these ‘average’ characteristics pinned down, all that is left to do is take a sample of quotes from around the region in question, then calculate the average.
Unsurprisingly, different measures bring different results. You can get national averages ranging from $889.45 to $1,271.
Are these really average rates?
This isn’t a math issue. It’s more what these numbers do and don’t tell you.
Let’s start with average auto insurance spending.
The NAIC is pretty clear that their numbers explain how much people pay for insurance not what level of insurance they got for the money.
Not everyone is looking to insure the same thing, for the same level of coverage, with the same personal factors influencing their cost.
Think about all your friends, co-workers and family with cars. How many of them are probably insuring the same car, with the same coverage, with the same driving and claim history, and the same credit score? Now apply this to everyone in a state.
If a state had more people only buying the minimum liability insurance as opposed to full coverage, or had more people ensuring newer cars, or with lower deductibles, this would affect the average amount spent.
Pulling average quotes for one specific type of driver gets around this issue.
You get info on, say, a 40-year-old married male with a clean driving record insuring a 2016 Honda Accord with coverage limits of 100/300/100.
Now we’re comparing the same type of driver, same car, coverage level, driving record etc, across states.
But of course, you don’t need us to tell you that not everyone in your state is a 40-year-old Accord driver seeking that specific type of coverage.
So unless you’re a good fit for this average driver, the numbers won’t provide much of a guide to your rate.
Do these numbers tell you anything?
Yes and no. These types of numbers are useful for understanding how specific factors affect quotes. It’s the best way we have for knowing, for instance that credit scores affect insurance rates, or how moving to a different post code in the same city can increase costs.
But for evaluating your own costs, neither of these average insurance rates can help you that much.
You can see if you’re spending more than others in your state on insurance. If you’re about to move states, you can also get a sense of whether you should anticipate a big jump in premiums – say, if you’re moving to Michigan.
Anything more specific is going to be a bit of a stretch.
What you can do instead
If you are looking at average insurance rates to see how your premiums compare, there are more productive things you can do to evaluate your rate.
These averages tell you very little about the costliness of your premiums relative to what you want to insure. There are simply too many individual factors at play for an average to be a relevant benchmark.
Many of these factors you can’t change overnight. Your car, your address, your credit score, your daily commute. Your combination of these factors is virtually unique.
A better bet is getting familiar with the factors that increase rates. From there work out how many of these apply to you, and if you can do anything about them.
Beyond that try and get as many quotes as you can. When you look up tips for saving money on auto insurance, you will always see shopping around somewhere near the top.
Rather than measuring yourself against these averages, benchmark the insurance companies at what rate they will charge you for the coverage that you want.
If you want to know if you’re getting a good deal, it’s the only kind of comparison that makes sense.