Why Does Car Insurance Cost So Much?

By Eric Peters, Automotive Columnist

Ever wonder why car insurance premiums are so high? Even if you’ve got a clean driving record — no accidents, few tickets — it’s not uncommon to be shelling out close to $1,000 annually to cover the nut for a full coverage policy on a late model car.

Over the course of five or six years, you might be spending an amount to insure your car that’s comparable to what an entire new car itself cost 20 or 30 years ago.

So — aside from outright gouging — what accounts for the major mark-up in car insurance costs?

Here are a few of the reasons:

Fixing Late Model Cars Is Massively Expensive

According to the Alliance of American Insurers (a trade group for the insurance companies), the cost to rebuild a $25,000 car using individual replacement parts would cost more than $68,000. If you’ve ever gone to a dealership to buy a part for your car, you’ll know all about this.

The per-piece cost of replacement parts is orders of magnitude more than the cost of buying all those parts together (in the form of a fully assembled brand-new car).

Also, even minor accidents today can result in major damage, bottom line-wise. Most new cars, for example, have fairly delicate front and rear “fascias” (what we used to call “bumpers”) made of a flexible plastic or composite material that is easily ripped or otherwise ruined — and often not possible to repair.

One must instead replace the entire nose piece (or tail section). Expensive. And these parts don’t come ready to install, like the old-style chrome bumpers of the past. Usually, they must be prepped and painted — adding another layer of cost to the repair. “Little parts” like today’s multi-faceted headlamp “assemblies” can cost hundreds of dollars to replace, too.

Air bags are another example. They are “one use only” — and if they deploy in an accident, they (and often, the entire dashpad/steering wheel) will have to be replaced. This alone can amount to several thousand dollars — before bodywork or paint is even factored into it.

Today’s cars are also more valuable, on the whole, than the cars of the past. Circa 1979, few new cars cost more than $15,000 — brand new. Today, it is not uncommon for ordinary family-type vehicles (such as a well-equipped minivan, for example) to cost upwards of $30,000.  Vehicles costing $50,000 or more are fairly common.

We all pay more for insurance as a result, since the amount of potential losses the insurance companies are covering is so much higher than was formerly the case.

Medical Liability And Lawsuits

Anyone who has been near a doctor’s office lately is aware that even a routine check-up isn’t cheap. As health care costs have risen across the board, insurance companies have transferred them to us via upticked premiums. One really serious or permanently disabling injury — or faked case of “whiplash” — can run into the six figures faster than OJ used to run through airports. According to the Bureau of Labor Statistics, the consumer price index for health care skyrocketed by 18.7 percent from 1994 to 1999 alone.

Since ’99 it’s probably gone up another 18 percent. (That sound you’re hearing is the sound of your wallet being emptied out.)

Uninsured Motorists

Lots of people are driving around without any insurance at all — even though the law requires all motorists to carry at least minimal coverage on every vehicle they own.

No one can say how many uninsured motorists are out there, but everyone agrees the number is increasing. The massive influx of illegal aliens has contributed mightily to the problem. They just don’t care — because there are no consequences… for them, that is.

When one of these clowns hits you, guess who’s left holding the proverbial bag?


As much as many of us suspect we’re being ripped off by our insurance company, there’s no question at all that the insurance companies themselves are being ripped off left and right — to the tune of $24 billion per year, according to the Insurance Information Institute.

Faked claims, BS injuries — the cost of hashing it all out in court — we all end up footing the bill.

So, as much as the insurance companies are sticking it to us, they’re also getting stuck by all the scammers out there, by the ever-escalating cost of settling claims, fixing cars and trying to make a buck off the whole deal. And as it turns out, a buck is just about what they are, in fact, actually making.

According to Liberty Mutual, for every $100 you spent on your policy, the company pays out $103.39 in claims and expenses; some 63 cents more goes to federal taxes. If it weren’t for return on investment income ($5.19 for every $100 taken in) the result would be a net loss.

Liberty Mutual says it ends up with  a net profit of $1.17 per $100 paid by us in premiums.

If that’s typical, they’re getting screwed almost as hard as we are.


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