It’s often been rumored that insurance rates are higher in big cities, but no one has published a formal study to prove the theory. Nevertheless, it’s a safe bet that if you live in a major metropolitan area, you’re paying more for your insurance than someone driving a similar car, with a similar credit profile, living in a similar neighborhood, and working in a similar job, just in a smaller town. Why is this? The simple answer is risk.
We all know that insurance rates are based on perceived risk. This is why cars with large engines cost more to insure than tiny compacts with equally tiny horsepower keeping them moving: the driver of the car with the larger engine is more likely to move at higher speeds, and engage in “reckless” driving machines.
Similar risks are attached to people who dwell in major cities: there is a greater likelihood of theft, for example, because there is a larger pool of potential thieves. City dwellers are also less likely to have garages, and more likely to be involved in accidents, because more people live in apartments, and traffic is generally denser.
Recently, the III (Insurance Information Institute) published a report about the causes of the rising cost of insurance in the state of New York. What they found was fraud and abuse of the state’s no-fault insurance system cost consumers and insurers almost $230 million last year, with many of those consumers being residents of the New York City area. In addition, they report that one of the largest sources of fraud involves medical payouts to accident victims. Basically, unscrupulous medical providers form alliances with equally unreliable attorneys, who then sue inusurance companies when the insurers question the validity of bogus claims. It’s a vicious cycle. And the end result is raised insurance premiums to offset legal fees.
Is behavior like this limited to the city, or to any city? Honestly, no. The difference is actually in volume. More people = more cases = more opportunities to commit fraud.
What can you do? Be aware of common insurance scams, and learn to avoid them, always compare insurance rates from several companies before you buy a policy, and if you live in a major city…consider using public transit a couple of days a week.