Want to save $275 per year on car insurance? Ask your state to look at California.

Fact-checked with HomeInsurance.com

The price you pay for auto insurance is tied to several factors, some are related to who you are, some are related to what you’ve done, and some are related to where you are. The state you live in can have a big impact on your auto insurance premium. California residents have benefited from relatively modest increases to their auto insurance premiums since the late 1980s thanks to strong consumer protections. 

A 2019 study by the Consumer Federation of America (CFA) found that the average California driver saved $275 annually between 1989 and 2015 because of these strict regulations. 

We spoke with the co-author of this study, Douglas Heller, an insurance expert with the CFA, to find out what California gets right about insurance regulation and how you can create a similar change in your state.

How insurance regulation impacts price

Insurance is regulated at the state level, so your insurance company needs to follow rules specific to where you live. There are two major ways that a state regulator can have a positive impact on the price its citizens pay for coverage:

Combatting discrimination

When an insurer prices your insurance coverage, it uses lots of factors to help determine your risk. Without adequate consumer protections in place, these factors may stray from information relevant to how you drive into profiling based on demographics like credit score and ZIP code.

Insurance companies’ rates are not allowed to be excessive and they’re not allowed to unfairly discriminate,” Heller explains. “One of the things that makes California rates so much better protected from abuse than some other states’ is the threshold of proof that insurance companies have to meet.”

Requiring rate approval 

The CFA found that

“states with stronger regulatory systems – that is, states that require prior approval of rates before they can take effect – have had the most success in slowing the rate of increases over time.” 

“Prior approval” requirement has helped California’s insurance rates remain affordable 

In California, insurance companies are required to get approval from the state’s authority on insurance for the rates they plan to charge. But this wasn’t always the case. 

After a period of high insurance rates, California residents came together to pass Proposition 103, a measure that instated, along with other consumer protections, a requirement that insurers get “prior approval” from the California Department of Insurance before the rates can be implemented. 

How to effect change in your state

Advocate change proactively

If you live in a state where insurance companies are less regulated, data has shown that your auto insurance rates are more likely to experience greater increases than others. Pushing for a system where insurance rates must be approved by the Insurance Commissioner before rates skyrocket can help avoid years of excessive payments.

“Michigan is a perfect example where rates are so high that clawing that back and getting things back to normal is going to take a lot more than a couple of speeches on a campaign trail,” Heller says.

Vote for stronger consumer protection

The type of system in place is important, but the officials carrying it out also matters. Heller notes that there are “states with prior approval systems, but not a culture of strong protection and it doesn’t work quite as well.”

Heller recommends checking to see which candidates have taken campaign donations from insurers if your state votes on the leader of your Department of Insurance directly. Even if the governor appoints this position, you can make an impact by making clear that improved consumer protections are an important issue to you in the next election. 

Samantha Kostaras

Insurance Reporter

Samantha Kostaras is an insurance reporter who covers financial services and insurance. Before becoming a writer, she worked as a financial analyst and earned her Bachelor’s degree in Finance from the University of Alabama.

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