What’s Driving Louisiana’s Auto Insurance Crisis? Part 2

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

Ahead of an upcoming Senate Insurance Committee hearing this Friday, March 14, on auto insurance rates in Louisiana, we are bringing you the second part of our series on the factors that are driving Louisiana’s high auto insurance costs.

Our College Fellow, LSU student Elai Levinson, has been working on this issue for a couple of years, and has developed some really interesting and, we hope, helpful insights that could ultimately lower costs. Reducing auto insurance rates in Louisiana would essentially serve as a tax break for families in the state, and it’s a tax break that would be most beneficial to low- and middle-income earners.

Too often in the state legislature, the debate on auto insurance costs revolves around the legal environment, with insurers and trial lawyers battling over turf and, in reality, money. At Louisiana Progress, we don’t have a stake in that part of this issue, and the following analysis is intended to identify ways to lower rates that are completely independent of those legal squabbles.

What’s Driving Louisiana’s Auto Insurance Crisis? Part 2

By Elai Levinson, LSU student & Louisiana Progress College Fellow

In a previous edition of Progress Perspectives, I introduced my research into identifying innovative solutions to address Louisiana’s auto insurance crisis, largely building off of the great work of my former colleague, Southern University graduate and former Louisiana Progress College Fellow Jaidyn Nix. 

In that previous piece, I wrote about how the use of non-driving factors in insurance rate-setting leads to higher costs, as well as scenarios where good drivers are paying higher rates due to poor credit history and living in a “riskier” ZIP code than bad drivers with better credit history who live in “less-risky” ZIP codes. Some states, such as Michigan, have blocked insurers from using these factors in their calculations, and have seen their rates fall by up to 12%.

Because fully unpacking this problem can be incredibly complex, I decided to try to essentially reverse-engineer the models that auto insurers use to set rates. Legislators, the general public, and advocates don’t have access to these models because they are proprietary and, though it is understandable that insurers want to keep it this way, we are left guessing which factors, both driving and non-driving, are weighted more heavily than others. 

Non-Driving Factors

One of the non-driving factors that gets brought up frequently when discussing Louisiana’s high auto insurance rates is credit score, and it does seem to be an important one. When plotted on a scatter chart, there is a noticeable correlation between credit scores and rates.

Using data from MarketWatch, we can see the average annual full coverage premiums for each state along the y-axis, with the average credit score by state on the x-axis. These trends indicate that states where citizens have  lower average credit scores tend to pay higher rates, and Louisiana (shown in gold) falls within this range. However, it does not explain why drivers in Mississippi (shown in gray), a state with an average credit score lower than Louisiana, pay so much less for auto insurance, on average, than drivers in Louisiana.

Similar to credit score, educational attainment is a non-driving factor that is clearly used to calculate rates, and it may be contributing to Louisiana’s high costs. 

The scatter chart shows a convincing correlation between the percentage of residents with a high school diploma, according to the most recent Census data, and insurance rates. But, while the chart indicates that Louisiana falls within the range of states with lower educational attainment and higher insurance rates, it is still unclear why drivers in Mississippi, a state with a similar average educational attainment level, are paying significantly less in auto insurance.

Many people have also pointed to Louisiana’s bad roads as an important factor that leads to more claims and, therefore, higher rates. The United States Department of Transportation has a statistic for road quality known as the percentage of roads considered acceptable for each state.

As expected, Louisiana has poor roads and high insurance rates, but Mississippi once again sticks out. Despite Mississippi having 69.96% of their roads classified as acceptable, compared to Louisiana’s 71.46%, Mississippi drivers pay an average of $2,140 in full coverage annually, while Louisiana drivers pay an average of $4,357. 

What these data show is that eliminating the use of non-driving factors for the purpose of determining insurance rates may reduce costs, but for some reason, insurers consider Louisiana to be more risk-prone than Mississippi, a state whose non-driving factors are almost identical, and in some cases worse, than Louisiana’s. It goes back to the larger question Jaidyn initially asked: Why are Louisiana’s auto insurance rates so much higher than Mississippi's?

Driving Factors

If you ask Louisiana drivers, especially those who have driven extensively in other states, about driving in our state, they will likely note that we have poor drivers. The YouTube channel Loui D. has posted hundreds of videos of dashcam footage of bad drivers just in South Louisiana. In my experience driving in Louisiana, I have seen drivers commit every driving error in the book, often several of them at the same time, including holding their phones in one hand and the steering wheel in the other.

To add some data to this point, the National Highway Traffic Safety Administration, a part of the U.S. Department of Transportation, released a ranking of pedestrian fatality rates in 2022. Louisiana had a rate of 3.94 pedestrian fatalities per 100,000 people. This was the third highest rate in the nation, behind Arizona (4.01) and New Mexico (4.40).

Looking at a scatter chart of only states in the American South, the correlation is striking. Louisiana is at the extreme top-right of the chart, while Mississippi sits near the bottom-left. Looking at non-driving factors, it was difficult to determine why Mississippi drivers paid much less in car insurance than Louisiana drivers. But more direct driving factors, like pedestrian fatality and injury rates, indicate that our state’s high rates are in some part affected by our own actions and road design. 

Pedacyclist fatality rates tell a similar story:

This chart, also showing only states in the South, once again has Louisiana far in the top-right, near Florida, the only state in the nation with a higher pedacyclist fatality rate than ours, and it’s another state with extraordinarily high auto insurance rates. Mississippi, on the other hand, has a pedacylcist fatality rate nearly half of ours, suggesting once again that a combination of Louisianans’ poor driving habits and poor road-safety design may be contributing to our higher auto insurance rates. 

For Louisiana to begin addressing the auto insurance crisis, we must first understand that there will never be a ‘one-size-fits-all’ bill that completely solves the problem. The cost of insurance is influenced by many different factors that are each weighted differently. 

Eliminating the use of non-driving factors is a start in tackling the auto insurance crisis, but we must also address the poor condition and design of roads throughout the state, with a goal of lowering our high rates of pedestrian and cyclist fatality. Until we start to see improvements in these areas, insurers will likely continue to consider Louisiana to be high-risk and our rates will remain among the highest in the country.