Your Zip Code Determines How Much You Pay for Car Insurance

Once again CarInsurance.com has put out its list of locations with the most expensive auto insurance. The list once more proves my contention that there is no logical or rational methodology to the way that companies price auto insurance.

“The average driver is not aware how much location impacts how much they pay for car insurance because there are many factors that go into setting your rate,” Carinsurance.com Managing Editor Michelle Megna told CBS News. “But a lot of car insurance companies use your ZIP code as a starting point when setting rates, looking at how many claims they get from that ZIP for theft, vandalism, accidents—and the cost of those claims.”

America's capitol of urban decay Detroit also has the nation's highest auto insurance premiums.

America’s capitol of urban decay Detroit also has the nation’s highest auto insurance premiums.

Megna leaves out a few of the biggest factors affecting auto insurance cost, including state laws, which seem to have the biggest impact. Yet simply living in certain zip codes can cost you more. If you don’t believe me take a look.

Where the Expensive Car Insurance Is

The most expensive car insurance in the country can be found in these zip codes:

  1. Detroit, Michigan, in ZIP code 48227. The average Detroit resident pays around $5,109 a year, or 130% over the statewide average of $2,226.
  2. Brooklyn, New York, in ZIP code 11226: $3,877 a year, or 151% more than the average resident of the Empire State, who paid around $1,542 a year to insure his or her wheels.
  3. Philadelphia, Pennsylvania, in ZIP code 19132: $2,760 a year, 128% more than the average Pennsylvanian’s annual premium of $1,210.
  4. Providence, Rhode Island, in ZIP code 02903: where the average resident paid $2,749 a year, or 38% more than the statewide average of $2,000 a year.
  5. New Orleans, Louisiana, in ZIP code 70117: where the average driver paid $2,542 a year, or 53% more than the average Louisianan, who paid a yearly premium of $1,657.
  6. Los Angeles, California, in ZIP code 90029 (West Hollywood): where the average person paid a yearly premium of $2,416, or 69% more than the average Californian, who paid $1,433 a year to insure a vehicle.
  7. Woodbridge, Connecticut, in ZIP code 06525: where the average person paid an annual premium of $2,291, or 50% more than the average Connecticut resident, who paid around $1,527 a year.
  8. Baltimore, Maryland, in ZIP code 21216: where residents paid around $2,256 a year to insure a car, or 79% more than the statewide average of $1,258 a year.
  9. Miami, Florida, in ZIP code 33142: the average Miami resident paid 60% more than the average inhabitant of the Sunshine state. Miami drivers pay an average auto-insurance premium of $2,248 a year; the average Floridian pays around $1,402 a year.
  10. Royalton, Kentucky, in ZIP code 41464: where the average person paid $2,104 a year to insure a vehicle, or 42% more than the average Kentucky resident, who paid around $1,484 a year for the same policy.
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Brooklyn is certainly picturesque but its residents would be well advised to stick to the subway because of high car insurance rates.

 

CarInsurance.com hired Quadrant Information Services to figure out what a 40-year-old man insuring a 2014 Honda Accord would pay in 33,410 zip codes nationwide. The man had good credit and a good driving record.

Why Some People Pay More

So what’s going on here? Is it high crime or greater urban density? No, as I’ve pointed out elsewhere, Detroit’s high costs are caused almost entirely caused by Michigan State Law. Residents of other large Midwestern cities, such as Cleveland, Chicago and St. Louis, that have high crime rates don’t pay such exorbitant insurance premiums.

The situation in Detroit is caused almost entirely by state law, which mandates insurers to cover accident victims’ medical expenses and offers such perks as lifetime medical care for victims. Michigan also has no-fault auto insurance, which keeps insurance companies from suing drivers that cause accidents. That means everybody pays for bad driving, including good drivers. Not coincidently, Philadelphia, which is located in another no-fault state, Pennsylvania, is also on the high-premium list.

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Detroit residents get a double whammy because a lot of poor people cannot pay for insurance. They still drive, which means that responsible drivers end up paying for any damage they do.

Some of the expensive places were also rather confusing. The Hartford Courant reported that not even Loretta Worters of the Insurance Institute could figure out why Woodbridge, a suburb of New Haven, had such high insurance rates.

There’s another reason for the high insurance rates that the big media will not mention: insurers actually have no good way of determining how safe a driver is. They have to use factors like credit scores and zip codes, which may have no bearing on driving.

That is changing thanks to telemetrics devices, which let insurers track movements and driving patterns. Next generation technologies such as Google’s and Mercedes’ self-driving cars might provide insurers with enough data to adequately measure driving and offer realistic insurance rates.

Until the new technology is widely adopted, you can ask your insurer for a telematics device. Or you can simply shop around for auto insurance and be willing to negotiate with insurers for a lower rate. The available data indicates that people who take such simple steps can save a fortune on insurance no matter where they live.