The Differences Between States

By Author: Marcus Stalder
Total Articles: 491
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During WWII, Washington lawmakers were sometimes persuaded to pass laws that, by modern standards, seem strange. Take the McCarran-Ferguson Act as an example. When Washington should have been protecting the ideals of capitalism and enforcing the principle of free markets, the lawmakers decided to create state-by-state monopolies for the insurance industry. Here's what they did. If you want a book today, you can buy discounted books from a major internet retailer. Even when you add in the shipping, it can still be cheaper than buying at your neighborhood bookstore. But if you want to buy an insurance policy, you can only do so from an insurance company registered in your state. No company can sell a policy across state lines. The result is a lack of real competition. The insurance companies pick and choose where to set up, aiming to keep the number of companies low in each state. This allows them to parallel each others' prices and maintain their profitability. Now you're all saying this is not significant. Except the difference in premium rates between states can be great.

Let's start at the bottom of the league table ...
... with a low-population state like Maine. In a recent survey, researchers got quotes for a "standard" man for all the major makes and models of vehicles. He was aged 40, drove an average distance to and from work, and accepted a $500 deductible. Averaging out the quotes allowed our average man to buy a policy for less than $1,000 per year in low-population and/or rural states. Why so low? When you only have a small number of drivers, even at peak commuting times, the risk of accidents is low. Indeed, the drivers in some of these states take a real pride in their skills and the statistics show significantly lower rates of claim for damage or injury. Now switch to a state with large population centers and heavy commuting traffic at peak times. Here the risk of accidents is far higher. Worse, because the standard of living is often higher, people are likely to be driving more expensive vehicles which cost more to repair. So our same standard man will be paying about $2,500 in Michigan.

There are also local factors that force up premium rates. This can be high levels of fraud, as in the no-fault states, or court rules that encourage more generous settlements, as in Louisiana. This means the accident of where you are born can place you in a state with very high premium rates - hardly the most fair system. What should happen is that federal insurers should offer policies for sale across state lines. This will even out the premium rates with the drivers in the low-population states subsidizing the driver in other states. Although a small number of drivers will end up paying more, the majority will pay less. Unfortunately, reform is unlikely in the immediate future so you should shop around and get as many auto insurance quotes as possible to find the policy offering you the best value. Meanwhile, start writing your elected representatives and start a political campaign. Just relying on the auto insurance quotes from your home markets is not a good defense against exploitation.