Back in 1989, the average expenditure on auto insurance in the state of Colorado was $515.31 which was just under the countrywide average of $551.95. In the 21 years ending 2010, the average expenditure in Colorado rose to $730.42 which represents a 41.7 percent increase compared to 1989. In the same duration, the nationwide average went up by 43.3 percent. This meant that Colorado went from being the 20th most expensive state for auto insurance to occupying the 25th spot.
Colorado’s insurance expenditure has not risen quite as much as the nationwide average partly because of the regulation that is place to protect consumer. The Consumer Federation of America released a study in November 2013 that shows that states that have strong insurance regulation achieved greater success in keeping rates low. Colorado has in place a File and Use system (where insurers are compelled to file rate changes before implementing them in the market) which has helped keep costs relatively low. However, states such as California have achieved greater success by implementing a Prior Approval system (where insurers are required to file rate changes and have them approved by the state before implementing them).
In the National Association of Insurance Commissioners (NAIC) report of 2012, Colorado received a Herfindahl–Hirschman Index (HHI) score of 940. The Department of Justice considers any score less than 1000 as competitive which means that Colorado is considered a competitive market and rightly so. Whereas average expenditure in 38 of the 50 states went up by more than the national average, Colorado’s went up by 41.7 percent.
The competitive nature of Colorado’s auto insurance market combined with the state’s insurance regulation has contributed to the slower rise in insurance costs. However, stronger regulation including a Prior Approval system will play a significant part in stemming the rise in insurance costs. California has demonstrated that strong regulation equates to lower costs by being the only state in the whole country where insurance costs went down (by 0.3%) over the 21 years from 1989 to 2010.