If you were alive and consuming in 1989, you probably are paying
much more for everything today than you were then. The average new
car -- only the fancy ones had airbags and CD players -- cost
$14,371; last month, the average was $30,804, says
But some things have gotten cheaper. Air fares, for example.
Computers. And here's a surprising one: car insurance.
An analysis released Friday from the nonprofit
Consumer Federation of America
(CFA) finds the typical household spent 43 percent more on car
insurance in 2010 than it did in 1989. That's well below the 88
percent increase in the Consumer Price Index, the government's
gauge of inflation, over the same period.
But the watchdog didn't crunch the numbers to point out what a
great deal everyone's getting on car insurance these days.
Instead, CFA is highlighting the changes made in one state where
insurance expenditures fell in absolute terms, not even accounting
Drivers in California
paid an average of $746 for car insurance in 2010 -- $2 less than
they paid in 1989.
California's car insurance time warp
"No other state has put in place the kind of strong oversight
that California voters created in 1988, and no other state has seen
auto insurance prices decline," says J. Robert Hunter, spokesperson
for the CFA.
California voters that year approved a sweeping proposal that
gave state regulators the power to approve rate changes before they
are implemented -- in many states that order is reversed --and gave
consumers a window into each company's rate-setting decisions,
limiting the factors that could be considered and providing a
specific discount for good drivers.
Over the same period, insurance costs in seven states more than
kept up with inflation. Kentucky, Louisiana, Montana, Nebraska,
South Dakota, West Virginia and Wyoming saw increases of 90 percent
or more since 1989. Only California, Hawaii, New Hampshire and New
Jersey saw insurance spending rise less than 25 percent. (The
figures include spending on all types and amounts of auto
insurance, from minimal liability policies on old cars all the way
up to Ferraris with millions in protection.)
Insurance industry groups strongly disagree with the CFA's
contention that the 1988 law is still working wonders.
The Association of California Insurance Companies points out to
a host of other factors, such as safer cars, fewer drunken drivers,
limits on lawsuits and better controls on fraud. Insurance
Institute for Highway Safety President Robert Hartwig told
Bloomberg News that higher gas taxes in California have led drivers
there to choose smaller cars.
What California drivers see
A consumer shopping for car insurance in California today might
not be aware of the behind-the-scenes politics that affect
rates, but they certainly encounter practices that make
- Credit can't be used as a rating factor. Only two other
states -- Massachusetts and Hawaii -- also forbid use of credit
information. (See "The double-whammy of bad credit.")
- A state-mandated Good Driver Discount gives a 20 percent
break on rates for experienced drivers with one point or less on
- ZIP code is not a primary factor in calculating rates, as it
is in virtually every other state. (See "How your ZIP code drives
up your car insurance.")
- The state has an exceptionally low requirement for liability
insurance, just $15,000 for bodily injury and $5,000 for property
- Low-income drivers with good records can go even lower on
liability, buying policies for $350 a year or less.
Here is the change, by state, in insurance expenditures from
1989 to 2010. The data come from the National Association of
District of Columbia 42.3%
New Hampshire 15.9%
New York 62.2%
National Average 43.3%