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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Leave a Comment

18 Responses to “Why Does Car Insurance Cost So Much?”

  1. Schwinn says:

    I would doubt and question any "data" coming from the Insurance Information Institute. I imagine the numbers are warped at least a little, if not outright lies. Most of the Insurance "Institutes" have consistently lied to the consumers… no reason they won't do it here.

    I'd love to see the real numbers behind their math…

  2. Jeff says:

    The insurance companies tell us lower speeds save lives, but those same insurance companies did not lower auto insurance rates when the 55 mph speed limit was enacted in 1974.

  3. Todd says:

    People think that slower speeds save lives but that is not true because most the accidents happen at speeds of 50-55 mph or below. I know this because this morning I just gotten into a car accident when a old man forgot to set the brakes and his car went down the parking lot, side struck my car, and ran into the parking lot hand station. The funny thing is this happen at 20 mph or below. Speed alone is hardly the cause of accidents, its when drivers make mistakes just like what the man in the parking lot did. But I forgive that man. I am however in no manner what so ever saying that to fast for the conditions around you cannot cause an accident because it can and yes we do have crazy drivers flying pass traffic at 150 mph or more but those situations are rare to begin with. I just hope that the insurance companies are honest or if not I wish that they would be honest.

    P.S. I hope that my back bumper, lights, truck, and any other damage can be fixed fast.

  4. Randy says:

    Jeff you and others spout off your mouth without facts and like to throw blame. The 1970s had some of the highest inflation ever. Vehicles become more and more expensive to repair and law suits are more and more expensive. Even if accident rates went down slightly during the 55 mph period the expenses went up. If you were working during that period did your wages stay the same and auto prices stay the same?

  5. Jeff says:

    Inflation did not hit until 1979. Remember Jimmy Carter and stagflation and double digit interest rates? Cars in the 1970s were supposed to be less expensive to repair due to mandated equipment such as 5mph bumpers.

  6. Todd says:

    To Randy

    Randy I have respect for your opinions, views, and beliefs but I just want you to answer one question. Do you think that majority of the accidents are always caused by speed alone or is it when drivers make mistakes that causes majority of the accidents? The reason why I am asking this is because you seem to support lower speed limits like for example the 55 national max speed limit. Correct me if I am wrong.

  7. Randy says:

    Jeff I guess this report must be wrong? http://inflationdata.com/inflation/Inflation_Rate

    Todd 90+% of accidents are caused by mistakes even a large percentage during bad weather conditions. The problem is with increased speed mistakes/misjudgment become major accidents rather than minor accidents and at times they would become non accidents at slower speeds.

    I have never said I was for 55 mph speed limits. I do not know what it should be but somewhere between 60 and 65 is not out of the question during fuel shortages or when high prices are occuring like the past few months were. It does save a lot of fuel driving slower and most trucking companies prefer those limits to reduce fuel costs. Once you start going past 65 mph you are not saving that much time unless you are driving 100s of miles and fuel use goes up a lot. When you hear about people that have to drive 80+ mph to go 10 miles down the road then that is crazy.

    The spending of huge amounts of money towards fuel was a small contributor to the economy problem we have now. When you think about the billions of dollars we spent on fuel the past few months it is mind boggling. How many people could not afford their mortgage payments and high fuel costs and other high costs caused by the increased fuel cost? Others spent money that could have went toward boosting the economy rather than sending it out of the country.

  8. Jeff says:

    Drivers in Germany were paying $9 per gallon of gas, yet many choose to drive over 100mph.

    There is no gas shortage.

  9. Randy says:

    Jeff if we were using 10% less fuel over the summer the price never would have got to where it was and we could have easily cut that amount. Everyone keeps bring up their favorite Germany but what about countries like Spain that were talking about 50 mph to cut down on usage. Most of the price that Germany and other countries pay is towards taxes etc. We pay ours other ways. Just wait if fuel prices increase like they were over the summer or even higher all countries would be talking about cutting speed. Germany also has some speed limits. It is not all unlimited speeds.

    The only reason we are not having limited supplies of fuel now is because the economy turned around at the right time if there is a right time for such a thing.

  10. Todd says:

    To Randy

    I hate to get off subject but Randy you say that slower speeds save gas. There is truth in that but did you or other people know that there are cars being built that are more fuel efficent that can go at higher speeds without wasting that much gas of an older car. In fact there are some for sale today. For example one of the many fuel friendly cars is the 2009 Volkswagen Jetta TDI produces 140hp, 235 ft-pounds, almost cutting pollution by 80%+ and gets 41+ mpg highway. VW however claims 50 mpg. There even is a clip of it on youtube. Just go to http://www.youtube.com and type in 2006 VW Jetta TDI 50+ Miles Per Gallon in the search bar. It shows that the car can move a 70mph while still geting 50+ miles per gallon but for Germany it probably can move at a 100 mph and get 35 mpg which is where most of the regular fuel friendly cars are at.

    P.S. We should however stay on the subject which is insurance. I'm sure Mr. Peters would like that.

  11. Jeff says:

    The price of a barrel of oil has nothing to do with how fast I drive. In the mid-1980s, the price of gas plummeted even though people were driving faster and more vehicles were on the roads.

  12. Jeff says:

    Why does car insurance cost so much? Because some states like Michigan have this crap called "no-fault" auto insurance. Even if the other driver is 100% at fault in an accident, your insurance company pays to fix your car. Connecticut was smart to dump "no-fault" several years ago.

  13. Randy says:

    First of all Todd I have a car that is rated at 35 mpg highway. I went slower the past two days on country roads and averaged 44 mpg and could have been better if it was not for using lights at night and some air conditioning.. That is the difference I am talking about with cars we have today. If we get all cars that get 50 mpg at 65 mph that would be a great start.

    To Jeff, we are not in the 80s any more. We now have India and China that are starting to use a lot more fuel. If the economy turns around we could be in big trouble again with fuel prices or shortages. It will be similar to what the southeast went through the past month.

  14. Todd says:

    To Randy

    I am not saying your wrong but two of my questions are 1)How slow did you go on those country roads? 2)How did you know that you got 44 mpg?

  15. Randy says:

    Todd I did it by traveling from 35 mph to 55 mph max. I looked at the mpg computer. It is very accurate. I know that because I recently got 656 miles on 15 gallons.

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  17. Tom McCarey says:

    My question to Walter Burien http://www.CAFR1.com was, why does car insurance cost so much? His answer:
    FROM – http://www.rense.com/politics2/hidetrill.htm

    Insurance company equity participation, (mandated federal law 1969, enacted for full effect after a 10 years compliance period in 1979), for 1/3 of the value of the insurance policy, to be on deposit and held by the insurance industry as a major catastrophe fund New Jersey State 1998 CAFR is 34 Billion dollars invested with insurance company equity participation, California is 1.8 trillion dollars, Federal is 4.6 trillion dollars. The revenue in the catastrophe fund, 86-90% is provided by composite government investment funds. That's about 8 trillion dollars. Do you know what the annual interest income is on 8 trillion at 4 to 5%. Get the point……

    Undisclosed tax through enactment of law on the insurance industry for the creation of the fund, where they, composite government, provided the revenue to meet the revenue requirements. Ever wonder why auto insurance rates are so high and payment is enforce by armed force? Well, lets see, Arizona, min coverage is $30,000 1/3 = $10,000, 5% annual interest on $10,000 = $500. My insurance is $658 per year – $500 = $158 to the insurance company.. Get the point????

  18. George Morris says:

    haha if you think $1000 is a lot trying it in britain cost me £3250 to insure my 6 year old car