Every state is slightly different
The premium rates set by the auto insurance industry are different in each state. There are two main reasons for this:
(1) Insurance is not sold nationally. Every state regulates the sale of insurance within its own borders. The different laws and regulations in each state produce slightly different policy terms and premium rates. Take three examples:
(a) Insurers in California cannot use the zip code as a “key factor” in setting the rates. They must focus on the quality of the driver’s record. This produces a different calculation of the risk as against, say, Texas where the use of zip codes is permitted. Read also: Is it wise to accept the maximum deductible to get cheap auto insurance?
(b) Three US states do not make the holding of liability insurance mandatory. This creates different risks on the roads in those states.
(c) Thirteen states use a modified version of the no-fault system which changes the way in which insurance companies adjust the loss between themselves when a claim is made.
(2) Insurance depends on the use of statistics to assess the probability of accidents happening.
Traffic density changes because:
(a) some states have major cities while others are mainly smaller towns in a rural environment;
(b) the population is not the same in each state; and
(c) the number of vehicles owned by individuals and families changes. Read also: How claims adjusters determine the value of cars.
The risk of accidents changes because of:
(a) the age profile of the drivers with some states, like Florida, having significantly more older drivers on the roads; and
(b) the weather conditions can be significantly different with some states producing winter ice and snow, tornados, hurricanes and flooding, all of which cause more claims than in temperate states.
The cost of loss changes because:
(a) unemployment is high, family budgets are under pressure, people spend less money on maintenance and repair, and mechanical failures cause more accidents;
(b) the quality of vehicle varies with some states being richer than others and having a higher percentage of more valuable vehicles on the road, many of which are more expensive to repair;
(c) accident, theft and loss due to local factors like high crime rates in inner city areas; and
(d) the cost of medical treatment is higher in the hospitals and clinics in some states.
How should you react?
You need to understand how your local state regulates the insurance companies that write auto insurance policies. There is a Department of Insurance website for every state. Each site has a summary of the local requirements. So you can immediately find out what the law is. All but three states force drivers to hold liability coverage. Read also: The first steps after a car accident.
The state sets minimums for personal injuries and property damage depending on whether only one person claims or there are several claimants. Penalties for failing to buy a liability policy also vary. Some states simply issue a fine. Others impound your vehicle. Some states add a requirement to hold Personal Injury Protection. This ensures there is always someone to pay for your own medical treatment.
The most important feature to watch out for are the thirteen states operating a modified no-fault system. This makes everyone responsible for their own losses, no matter which driver was at fault. The claimed advantage of this approach is the reduce the number of tort claims going through the courts. So an injured driver can only go to court if the value of the claim is above a threshold amount or other conditions are met. These are the states:
- New Jersey.
- New York.
- North Dakota.
What happens when you drive into another state?
The basic rule is that the insurance you buy in your home state covers you wherever you drive in the US. But, if you should have an accident, the law of the state in which you caused loss and damage will usually be applied to decide whether you are at fault and how much you should pay. So if you regularly drive into neighboring states where jury awards tend to be higher than in your own state, you should consider buying an umbrella policy to cover the additional risk.