Breakdown of Auto Insurance Policy Costs
Auto insurance rates are at an all-time high, which makes you as a consumer wonder, "Where exactly does all my premium money go?" Those of you who have not filed a claim in years, much less never filed a claim, may think of the premium you pay as hundreds of dollars a year just filling the coffers of auto insurance executives. With terms like "golden parachutes" and "exorbitant executive retreats" in the news, why would you think otherwise?
However, if you take a closer look at the breakdown of where your premium dollars go, you can see that insurance profits are not as high as you may think.1 Of every $100 earned in private passenger auto insurance premiums, the revenue is broken down as follows:
- 67% paid out in the form of claims
- 24% for general operation costs, commissions, and advertising expenses
- 5% for taxes
- 8% in profits
So although it seems that the insurance companies' profit margins are exploding exponentially, their margins are in fact in the single digits. Of most interest to people is the largest portion of insurance companies' expenses: claims. The following outlines how that 67% is paid out:
- 15% for property damage liability
- 15% for collision claims
- 11% for lawyer fees
- 9% for medical payments to injured persons
- 7% for comprehensive claims
- 5% for pain and suffering
- 2% for wage losses
- 2% for cost of settling claims
1Figures are taken from the 2006 data supplied by the National Association of Insurance Commissioners (NAIC).