Alaska is the 27th most expensive auto insurance state in the country. With an average auto insurance premium of $1455, the insurance rates in Alaska are close to the national average, i.e., $1496. Over the past quarter, auto insurance expenditure in Alaska has, however, risen by more than 55%. In 1989, the average insurance expenditure was $560.27, while the expenditure in 2010 is $890.35. There has, thus, been a 58.9% change from 1989 to 2010. The national auto insurance average expenditure in 2010 is $791.22.
It is a well-known fact that auto insurance rates are determined by your age, gender, location, and some other forces beyond your control: state regulations, the theft rate in your area, and competition in the marketplace. Let us consider these factors in Alaska to understand how they have shaped insurance rates in this state.
State regulations –
The state of Alaska follows the ‘flex’ regulatory law. In an attempt to provide price stability for the drivers, ‘flexible rating’ (flex-rating) combines the principles of prior approval, use-and-file and file-and-use ratings. Insurers can put prices into use without giving notice to the state if the rate change is within a particular range. Outside this allowable range, prior approval of rate changes is required. That is, rate revisions within a designated percentage flex band may be used without approval, while those outside the band must be authorized by the regulator. Percentages range from 5 % to 25 %.
The average change in insurance rates is 66.8% for states that follow the flex regulatory system. In Alaska, there is a 58.9% increase from 1989 to 2010. The states that have adopted the ‘flex’ system have experienced the second highest change in average insurance rates. The maximum change is witnessed by the states that follow the deregulatory system.
Motor vehicle theft rate –
Auto insurance rates go up in areas where theft rates are on the rise. In Alaska, 625 vehicles were stolen in 2011. Insurers have to dole out settlements for stolen cars, so their total expenses increase. They make up for this by increasing the premiums.
Percentage of uninsured drivers –
In Alaska, 13% of the motorists are uninsured. There are 24 states with a higher percentage of uninsured drivers in the country. This percentage matters because insurers factor these in while deciding premium rates. In states where there are higher percentages of uninsured drivers, the insurance rates also tend to be high.
Competition intensity –
The Herfindahl-Hirshman Index (HHI) is used to measure competitiveness in a market. Competitive states have a higher market concentration than the not-so-competitive ones. The HHI works like this: the higher the HHI, the competition in the market is typically lower.
According to the Department of Justice, competitive marketplaces have scores of less than 1,000 on the HHI, while moderately concentrated marketplaces fall within the 1000-1800 range. When a state scores more than 1800, it is a highly concentrated marketplace.
Alaska’s HHI is 1672, which means that it is less competitive and moderately concentrated.