Which States Have the Cheapest Auto Insurance?

Maine license plate that says "cheap"Definitively stating which states have the cheapest auto insurance is difficult to do because differences in state laws make apples-to-apples comparisons problematic. There are a few different sources for state-by-state cost rankings, and none are identical. However, a few states do usually end up getting ranked as having the cheapest coverage from year to year. The following list includes a few of them:
  1. Maine
  2. Iowa
  3. Wisconsin
  4. Idaho
  5. Ohio
  6. North Carolina
  7. Vermont
Those seven states were all ranked in the top 10 cheapest states for coverage in the most recent editions of both the National Association of Insurance Commissioners (NAIC) auto insurance report and Insure.com’s state-by-state cost rankings.

(Check out our article on how the NAIC calculates a state’s average premium for more information on that particular publication.)

Why Some States Are Cheaper

Why are average policy prices lowest in those states? It’s hard to say. The simple answer is that, as a whole, drivers in those states tend to cost insurers less than drivers in other states.

But that leaves the question of why drivers in those states cost insurance companies less—and the answer to that question can get complicated.

There are certain attributes about a state that can help predict how frequently its drivers file claims and how large those claims tend to be. Here’s a list of some of the biggest factors, according to the NAIC, along with an explanation of how they can influence insurers’ losses:

Accident rates

This one’s pretty obvious. A state that has a significantly lower accident rate than others will have fewer cars getting crunched and fewer owners of crunched cars filing claims with their insurers. But there are some noteworthy subfactors that influence accident rates, like population and traffic density. If a particular area has a lower concentration of people and cars on the road, accident rates tend to go down. A whole spectrum of smaller subfactors also influence accident rates. One example that may not be very obvious is road design. As the Connecticut Office of Legislative Research noted in a 2006 report on territorial rating, some older cities contain networks of roads that may not have been planned with cars in mind, and this can lead to havoc on the roadways.

Washington, D.C., gridlock doesn’t apply only to the U.S. Congress. The nation’s Capitol is often in the higher spots of NAIC’s rankings of most expensive regions for auto insurance. A regulatory official told Online Auto Insurance News (OAIN) that one of the primary reasons is the traffic gridlock that, in turn, makes crash claims more likely.

And remember the difficulty of “apples-to-apples” comparisons between states' average auto insurance prices? The Washington, D.C., regulatory official had another way of describing it to OAIN.

“It’s one of those apple-to-thorns comparisons,” he told OAIN. “D.C. is a denser, urban environment than the states that it’s compared to in the rankings.”

Repair and Hospital Costs

The average cost of medical treatment and car repairs both directly impact the final size of an accident claim. When those cost trends are statewide, they can affect the state's average price for car insurance.

Some states see rampant abuse of auto insurance medical benefits, in which criminal rings get unscrupulous medical providers to inflate the cost of health coverage and misuse the claims payouts. When this happens on a large scale, it pushes up the average cost of health-related auto insurance claims and can push overall treatment costs upward. In states where claims abuse and medical care costs are relatively low, the opposite happens.

Michigan, typically known for higher-than-average rates, has grappled with controlling exorbitant medical costs to treat injuries from car wrecks. Some experts have pegged the state’s unique personal injury protection (PIP) as the culprit; PIP coverage in Michigan is the only type in the U.S. that offers unlimited, lifetime coverage for severely injured motorists.

When it comes to car repairs, average repair costs can fluctuate by as much as 40 percent between states, according to a report from CarMD. That same report showed that Maine, Wisconsin, and Iowa — three of the cheapest states for coverage — also had some of the lowest average repair costs in the country.

Theft Rates

Although not every policy includes comprehensive coverage, many do. This type of insurance is not required by law, but the majority of people purchase it since it covers theft and vandalism of the insured vehicle. The price of comprehensive coverage is influenced by vehicle theft rates in the same way that the cost of crash-related coverages is influenced by accident rates: If a particular state has lower-than-average theft rates, residents are likely to cost insurers less under comprehensive coverage and have lower-than-average premiums for this type of coverage.

When you look at FBI crime data for motor vehicle thefts in 2010, Vermont, Maine, Idaho, and Iowa are among the 10 states with the lowest number of thefts when compared with the number of comprehensive policies purchased by consumers in those states. Wisconsin, another one of the cheapest states, almost made the cut; it had the 11th-lowest theft-per-comprehensive-policy rate.

Auto Laws

The strength of a state’s auto safety laws can have an impact on the average cost of coverage. If a state has stricter seat belt laws and lower average speed limits, it could reduce the seriousness of accidents and help lower the average cost of medical treatment per claim. That means lower claims payouts from insurers, which could trickle down into lower premiums.

Income

The income levels of residents in a particular state can indirectly affect how much they cost insurers in two ways. And in some cases, the nature of a driver’s job itself can impact his or her auto insurance rate.

First, income affects how likely a policyholder is to rely on their coverage. If residents of a state are particularly wealthy, they’re likely to have more funds to use for things like car repairs. So instead of filing claims for small damages and potentially seeing higher insurance rates as a result, policyholders in wealthier states might just pay for the repairs out of pocket and cost insurance companies nothing when it comes to smaller damages, resulting in lower costs for both insurers and policyholders.

Second, the income levels of residents of a particular state may affect what types of cars they end up purchasing. If residents of a state have higher incomes, they might be inclined to buy more expensive cars, which generally means more expensive repairs. New Jersey, typically ranked among the top 3 most expensive states for auto insurance by NAIC, typically has drivers that not only spend more on their cars but also more on their coverage, a regulatory official told OAIN.

However, these two theories appear to counteract each other. Even though residents of a wealthier state may use their coverage less often, the average claim size would be inflated because of the higher cost to repair their more-expensive cars. In that case, it would seem that drivers with mid-range incomes would end up costing insurers the least. They wouldn’t necessarily be reliant on coverage for every little thing, and they wouldn’t be driving around in top-dollar vehicles.

"Cheapest Price" sealAnd, sure enough, a couple of the states that are considered to have some of the lowest coverage costs have median incomes that are mid-ranged when compared with the entire U.S. In 2011, state-based median incomes ranged from about $40,000 to about $69,000, with the national average being $50,054, according to U.S. Census data. Iowa and Maine had median incomes that were within $400 of the national average. Idaho, Vermont, and Wisconsin, meanwhile, had median incomes that were within $3,000 of the national average.