By Elai Levinson, LSU student & Louisiana Progress College Fellow

This is the first in a three-part series exploring why Louisiana’s auto insurance rates are among the highest in the country. Subscribe to follow this series and receive other emails from Louisiana Progress.

Earlier this year, in my junior year of college at Louisiana State University (Geaux Tigers!), I was finally able to purchase a car. It may not include all the amenities that people in my generation are accustomed to, like Bluetooth or even automatic windows, but it safely and swiftly gets me from Point A to Point B. And of course, as a new car owner, I now have to start paying for auto insurance. When I found out how much it would cost–close to $300 a month for minimal coverage–I was flabbergasted. The cost of living is already high enough, especially for college students like myself, with rent, groceries, textbooks, etc., but I also need a car to get around Baton Rouge. And if the burden of expensive car insurance is affecting me, how hard is it hitting lower-income Louisianians?  

In my time at Louisiana Progress I have learned about the extreme auto insurance crisis in Louisiana. My former colleague, recent Southern University graduate Jaidyn Nix, sought to figure out why auto insurance rates were so high in Louisiana compared to neighboring states like Mississippi and Texas, in a blog post released in August. Jaidyn brought up the high rate of uninsured drivers in Louisiana, which leads drivers like myself to add uninsured vehicle coverage to their policies. She also wrote about Louisiana’s severe weather and bad roads, the latter of which is often cited as a contributing factor in high rates.  

Additionally, Jaidyn touched on the use of non-driving factors such as age, gender, and credit score in calculating rates, and how these factors “play a big role in the disproportionate impact auto insurance rates have on marginalized communities.” However, she also noted that, while Louisiana and Mississippi have similar problems with poverty rates and non-driving factors like poor credit ratings, drivers in Mississippi are paying much lower rates than Louisiana drivers. 

The website MarketWatch frequently updates a “Car Insurance Cost Comparison by State” based on ongoing research. As of their October 2024 update, the data indicates that Louisiana is among the most expensive states for auto insurance with an average annual full-coverage premium (AFCP) of $4,357. In comparison, Texas has an average AFCP of $3,156, Arkansas has an average AFCP of $2,398, Tennessee has an average AFCP of $2,237, and Mississippi has an average AFCP of $2,140; meaning that Louisiana drivers, on average, pay more than two times as much for insurance than Mississippi drivers. 

This discrepancy stuck out to me. Why is it that Mississippi drivers, who live in a neighboring state with very similar demographics, are paying approximately half as much for their auto insurance? I set out to try to figure out why that is, and I thought the best way to do that would be to try to reverse engineer the models used by auto insurance companies to determine the rates they charge their customers.

Reverse Engineering the Model

Insurers keep their methods of determining rates private. From a business standpoint, it makes sense for them to keep their secret formula proprietary. But that secrecy also makes it harder for legislators, regulators, advocates like Jaidyn and I, and the average driver to figure out which factors are incorporated into these calculations and how each of them are weighted.

Over the past few months, by building off Jaidyn’s work and research, I have attempted to crack the code on insurance rate calculations by comparing average annual premiums state-by-state to various factors (both driving and non-driving), in order to see what sticks out. Throughout this process, I have come across many factors that strongly correlate to higher insurance rates, as well as factors that suggest Louisiana could make changes to reduce rates so they are more comparable to our neighbors like Mississippi.

When calculating rates, insurers take into account various factors based on risk. The most obvious example is that if you have a bad driving record you are considered to be riskier for insurers, so they charge you higher rates, and understandably so. The more perplexing part of their calculation is how big of a role non-driving factors, like credit score, home ZIP code, and educational attainment, play in determining rates. If you have a below average credit score and a good driving record, you could very well be paying more for auto insurance than someone with a good credit history and a poor driving record. It doesn’t feel right to me that drivers with bad credit history are being penalised by paying higher insurance rates. 

How have other states addressed their auto insurance crises?

Michigan dealt with an insurance crisis of their own, and they were able to decrease their rates after enacting a series of reforms in 2019. One of these was Senate Bill 1, which, among other things, mandated that insurers would not be able to use sex, marital status, home ownership, educational attainment, occupation, ZIP code, or credit scores to establish or maintain insurance rates. While Michigan still has some of the highest auto insurance costs in the nation, their rates did go down after prohibiting insurers from using those non-driving factors to determine rates.

The bill was not perfect. Outlier Media, a Detroit-based nonprofit media organization, published an article that referenced a loophole in Senate Bill 1 that allowed insurers to establish their own statistical territories in lieu of using ZIP codes to calculate rates. This has led to a huge variation in rates in cities like Detroit, which has a majority-black population, and the surrounding suburbs, which are majority-white. 

It’s worth noting that Michigan is a no-fault state, meaning that regardless of fault, you can file a claim to cover medical costs for an auto-related injury. Michigan is one of 12 no-fault states. Louisiana, on the other hand, is an at-fault auto-insurance state. Liberty Mutual, the company responsible for the infamous Limu Emu & Doug commercials, say that no-fault states generally have higher insurance costs than at-fault states, which makes Louisiana’s insurance crisis even more concerning.

Like I mentioned before, we advocates do not have the secret formula for how insurers determine rates. We know that non driving factors such as credit score and ZIP score are used; but should they be? Are these the best measures to determine risk? These reforms would be a great start in addressing Louisiana’s auto insurance crisis, but the discrepancy between us and our neighbors suggest that even more work would need to be done. My former colleague Jaidyn brought up that Louisiana is an outlier among states with similar demographics such as Alabama, Tennessee, and Mississippi especially. 

Now that she has graduated from Southern University and from Progress’s Fellows program, I am excited to build on her work by exploring other factors that are driving our state’s auto insurance crisis, and will dig deeper into those in parts two and three of this series, which will be published on the Louisiana Progress website and emailed to our subscribers in the coming weeks.