If you've ever shopped for insurance, you have an idea of how much background information insurers are looking to collect.
When it comes to auto insurance, there are a number of factors at play. But few are more important than mileage.
For the third year in a row, insuranceQuotes and Quadrant Information Services examined the average economic impact annual miles driven has on the cost of auto insurance. The study found that drivers who increase their annual miles driven have the following rate changes: 5,000 to 20,000 miles resulted in a 9% increase; 5,000 to 15,000 resulted in an 8.4% increase; 5,000 to 10,000 resulted in a 7.1% increase.
The financial impact of annual miles driven varies greatly depending on the state where you live, however.
Related: Auto premium increases put strain on insurers' customer satisfaction
|States where rates are increasing and decreasing
According to the insuranceQuotes study, here are the top five states where drivers see the highest jump in premiums for increasing annual mileage from 5,000 to 20,000 miles:
- California — 25.7%
- Alabama — 9.8%
- Virginia — 9.2%
- Massachusetts — 9.1%
- Washington, D.C. — 9.1%
Conversely, here are the top five states where the cost increases for going from 5,000 to 20,000 annual miles barely makes a difference:
- North Carolina — 0%
- Rhode Island — 1.1%
- Georgia — 2.5%
- Texas — 2.8%
- Oregon — 3.1%
Related: Top 5 states for car insurance savings
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Discrepancies betweens state come down to how states regulate insurers. (Photo: Shutterstock)
|Making sense of the discrepancies
The reasons for the state-by-state discrepancies comes down to how each state regulates insurance, according to John Espenschied, a veteran auto insurance expert. Espenschied says drivers in other states are rewarded for factors such as long-term continuous insurance coverage with the same company and higher bodily injury limits.
Looking at California, its voters passed Proposition 103 in 1988, which limits the factors insurance companies can use when determining auto rates, including a ban on using credit scores. Now insurance companies must focus on driving safety record, average miles driven per year and years of driving experience, in this order of importance.
It's hard to figure why rates in North Carolina and Rhode Island, for instance, are not impacted by miles driven.
According to Eli Lehrer, insurance regulations expert and president of the R Street Institute, North Carolina has a unique way of setting insurance rates. There, insurers propose new rates to the North Carolina Rate Bureau, which then sets a statewide base rate for all companies insuring in the state. Additionally, the state's insurance commissioner sets a cap on how much insurers can raise rates based on annual miles driven.
Related: You just got a moving violation ticket. Now what?
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Insurers are using a variety of methods to confirm driver's annual mileage throughout the year. (Photo: Shutterstock)
|Keep your insurer in the loop
No matter the cost, it isn't worth lying to your insurer. Fudging the truth about how many miles you drive each year in order to save some money could result in a canceled policy should your insurer find out.
Related: When insurance customers lie
In some states, insurers are going to greater lengths to verify your annual miles driven. For instance, drivers in California must verify their odometer readings each year with their insurer if they claim less than 12,000 miles annually.
|Looking ahead
Industry experts believe insurers will turn to pay-as-you-drive (or usage-based) insurance programs. Many forms exist currently, and drivers who volunteer for the service often receive discounts based on their driving in turn.
More U.S. auto insurers are turning towards telematics devices, smartphone apps, or built-in car technology to record data regarding driver data. In turn, carriers can set discounts based on individual driving practices.
As an increasing number of usage-based insurance options come to fruition, the only question is whether or not drivers will embrace the trend.
Related: InsurTech's pay-as-you-go promise
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Denny Jacob
Denny Jacob is an associate editor for NU PropertyCasualty360. Contact him at [email protected].
