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Cheap car insurance for teens is only possible in some states

Some road users would like all teen drivers to have a large warning light attached to the roof of whatever vehicle they are driving so everyone can try to take evasive action. Although individual young drivers may be as responsible as their grandparents when they get behind the wheel of a car, the majority are easily distracted by technology, their hormones and their appetites. You may prefer to put this belief in the urban myth camp, but the insurance industry obviously agrees. As parents and the teens who are invited to pay for their own insurance will testify, the rates they are asked to pay are usually at least double the rates payable by older drivers.

Here are the states with the highest and lowest rate increases:

1. Arkansas - 116%

2. Utah - 115%

3. Wyoming - 112%

4. Alabama - 111%

5. Idaho - 107%

6. Montana - 66%

7. Massachusetts - 66%

8. New York - 62%

9. North Carolina - 59%

10. Hawaii - 18%

As an example of car insurance quote shock, take the research for parents in Connecticut. If a married couple insure with the same company and maximize their discounts for bundling and multiple vehicles, the average family is paying $2,700 a year. When they inquire about adding a teen to that policy, the average increase is $2,150. That’s almost 80% added to the cost of insuring two adults. But it doesn’t have to be this way.

This is one of the more famous landmarks in Hawaii and the hand gesture indicates satisfaction that adding a teen driver to a family policy only increases the auto insurance quotes by 18%. This is a fairly remarkable difference in result. With teens shown to have the highest risk of an accident, why are the rates so low? The answer comes from the way the state regulates the insurance industry. Hawaii is the only US state that prevents local insurance companies from directly relying on the age, length of driving experience and gender when it comes to assessing the premium. So adding one new driver to a policy costs about the same no matter what the age of the driver. Put this another way and you get a very interesting political result.

Every US state is sovereign and it can make whatever laws it likes to regulate its local insurers. If law-makers want to limit the cost of insuring teens, they could do it in a heartbeat. The way it would work is that everyone would pay about the same starting premium to drive. If each driver keeps a clean sheet with no tickets or claims, the rates will fall. If drivers show themselves to be unsafe, the rates will rise. But the starting point will be the same. Of course it will be a little higher for everyone to spread the cost of the higher claims by the young and inexperienced drivers. They don’t stop driving badly just because the law-makers pass new regulations. But if the politicians wanted to cut the cost to parents, they could do so. Why don’t they?

The answer is simple and falls into two parts. Voters would complain if everyone had to pay more to cover for the bad driving of teens. Subsidizing inexperienced learner drivers is not going to be a big vote winner. Secondly, the higher the rates, the greater the deterrent value. Price is a big lever to move public opinion. The more parents or their young adult children have to pay for the privilege of driving, the more the parents will consider the wisdom of letting them drive. Why pay so much when you know there’s a strong possibility the inexperienced driver will end up in hospital? So parents try to educate their children and encourage them to drive more carefully. If the price was significantly reduced, parents would care less and teens would, by default, continue to drive badly.

Is there a halfway point where there can be some reduction while still keeping up the price pressure on parents to control the way in which their children drive? This forces a slightly difficult approach. There’s always a balance between local driving conditions and the regulation of the insurance industry. If you live in an urban area with high traffic density, you are always going to pay more for your insurance no matter what your age and experience. The insurers also look at how effectively traffic laws are enforced, what makes and models are driven, the spread of income and wealth throughout the state, and so on. Neither age nor the level of regulation on its own is particularly significant. It’s a package deal, often specific to conditions in your state, e.g. the crash data. That said, the rates in North Carolina do not rise as much as in other states when a teen driver is added because local insurers are not allowed to use age or gender when it comes to calculating the auto insurance quotes. This does not mean cheap car insurance rates, of course. But it does produce a more fair distribution of the risks among all drivers.

This produces a political map. As a generalization, the Republican states which have fewer regulations have higher annual auto insurance rates than the Democrat states with consumer protection laws. So annual premium rate increases are lower in New York in part because insurers can’t use credit scores to set rates — most teens have poor scores when they are starting out with new cards. So there does seem to be a compromise possible on cheap car insurance and, in part, it’s driven by the quality of the regulations controlling local insurers. Obviously, it’s not convenient for everyone to change state as their children are approaching the age at which they can get a driver’s license. But this is the type of political discussion every voter should be having in his or her state. Exactly what is your state’s public policy stance on teen drivers and why is more not done to produce cheap auto insurance rates and a safer approach to driving, e.g. by graduating the licenses and requiring the fitting of telemetric technology to monitor and enforce the quality of the driving? There’s a lot states could do to keep more teen drivers safe. Why are they not doing it?

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