Many people think that Texas is one of the most expensive places in the country to get auto insurance. In fact, Texas isn’t even in the top ten nationwide for highest averages for car insurance.
Why does it seem so high?
Insurance companies set their rates based on ZIP codes.
Texas is the 2nd most populous state in the United States. Furthermore, the vast majority of the Texas population lives within the triangle made up of the Dallas-Fort Worth metropolitan area, Houston, and the San Antonio-Austin metropolitan area.
With it being such a big state and with most of the population living within just a few areas, auto insurance rates fluctuate wildly across the state.
Insurance companies set their rates based on factors within a certain ZIP code. It’s not state-wide, it’s all based on ZIP codes.
This means that the people living in West Texas are paying much less in auto insurance premiums than the people living in Houston.
In fact, Houston is one of the more expensive cities for auto insurance in the country. It’s not the most expensive, but it’s on the list.
Reasons Why Insurance is High in Texas Cities
Rural Texas doesn’t have as high of rates, but the big cities of Texas, especially Houston, do have higher rates. There are a few reasons for this.
1. A high number of auto accidents.
With such a large amount of people living in a few areas, traffic is becoming very congested.
It’s simple math: with a higher number of cars in a small area, there’s a greater chance for an accident. This is exactly what’s happening in Texas’ cities and the reason for an increased number of accidents on Texas roadways.
2. More expensive vehicles.
Texans are purchasing more expensive cars, with the latest and greatest technological advances. Newer cars are equipped with an increasing number of sensors, they have Wi-Fi and Bluetooth technology, and in many ways resembled driving computers.
Some of the latest models are also starting to feature self-driving capabilities, which pushes the price even higher. This makes repairing or replacing these cars more expensive for insurance companies.
3. High-speed limits and reckless driving.
This can also help explain the overall increase in auto accidents. Texas’ average speed limits are one of the highest in the country. When you combine this with the fact that many Texans drive very fast, and many of them have big trucks, it becomes a recipe for an accident.
Big, expensive trucks driving very fast in a congested area will result in more accidents.
4. Increasing Number of DUIs
Unfortunately, Texas has the highest number of DUIs that result in fatalities in the country. In 2016, there were 1,438 fatalities in Texas. There were over 10,000 injuries from DUI accidents in 2016.
This is a big reason why car insurance rates seem to be higher in Texas. With so many DUI accidents and fatalities, insurance companies are paying out a lot of money in claims.
Just as importantly, they are also projecting to pay out a lot of claims money in the coming years, knowing that Texas as a big problem with DUIs.
Insurance Companies Are Trying to Break Even
With the high number of accidents and more expensive claims, auto insurance companies in Texas need to set higher premiums to cope with these numbers. It’s common for insurance companies to lose money in any given year on auto insurance.
When this is the case, they will likely raise rates in the following year to try to recoup some of that money as well as plan for further losses in the upcoming year.
They look at the finances of each ZIP code: how many accidents there were, how much premium was received, and how much was paid out in claims.
ZIP codes that perform bad (had a lot of accidents and paid out a lot of money in claims) will get hit with a larger rate increase the following year. However, this doesn’t mean that safe ZIP codes are completely immune from rate increases.
While companies look at ZIP codes, they also look at the overall state’s performance. If overall there is a greater amount of money paid out in claims, or if they project that to happen in the upcoming year, the whole state will likely have a rate increase.
In other words, the entire state might have a 7% increase, and then certain ZIP codes in metropolitan areas could see a 15% increase.