States that keep a lid on car insurance

By MarketWatch

Earning its nickname, the Golden State has saved its residents $62 billion in almost two decades thanks to some crafty auto insurance rules, according to a new report.

New Jersey, Hawaii, New Hampshire and Pennsylvania also have served drivers well by keeping insurance rates relatively low, but drivers in other states have watched their costs skyrocket 100% or more between 1989 and 2005, the Consumer Federation of America says.

California ramped up its auto insurance regulatory system in the late 1980s, making it tougher for companies to raise rates. More regulation has tamped down price increases for consumers there and in other states that require government pre-approval for rate increases.

"Not only are rate changes held down, but competition is not dampened, and profits are reasonable for the insurers," said J. Robert Hunter, the consumer federation's insurance director. "It is also clear that as regulation is weakened, insurance consumers are worse off."

Nationwide, the average cost of auto insurance jumped 50% from 1989 to 2005, but average per-car spending on coverage rose just 13% in California, according to the federation's report.

Other states where price increases were held down, relatively speaking, included New Jersey, with a 20% increase over that period; Hawaii, 25%; New Hampshire, 30%; and Pennsylvania, 31%. Rates in New Jersey, Hawaii and Pennsylvania, however, were above the national average, and New Hampshire's weren't far behind.

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With the exception of New Hampshire, those states have systems in which insurers cannot put rate changes into effect without state approval, according to the report. "This system is best at holding prices down, yet allowing reasonable insurer profit and maintaining a competitive market," the federal report says.

Where insurance rates jumped

States with the steepest rate changes were Nebraska, where average per-car costs surged 118% to $620 from $285 over the 16 years ending in 2005, and South Dakota, where costs jumped 107% to about $565 from $274. Still, those averages were lower than the $845 in California.

Other high-increase states included Montana, 104%; Wyoming, 101%; and Kentucky, 100%. Wyoming does not control rates, and the four other states require companies file notice of rate changes but don't require state pre-approval of those changes.

"The worst regulatory regime for consumers is the so-called 'competitive' system, which does not hold down prices, allows somewhat higher profits than other regimes and results in less competitive markets," according to the report.

Continued: Not everyone agrees

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