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Buckle up: ​Car insurance rates are set to soar

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Your auto-insurance rates could soar, and other MoneyWatch headlines 01:09

Are higher car insurance rates coming? Ask the residents of Georgia, where Allstate Property & Casualty Insurance has just raised some auto premiums by 58 percent.

The Good Hands People have claimed that's an extreme case, but it doesn't deny that nearly half its Georgia customers will pay an average of 25 percent more to drive their cars, a rate hike that left the state's insurance commissioner, Ralph Hudgens, so frustrated that he launched an investigation by an independent actuarial firm.

But since Georgia is a "file and use" state, this means all an automotive insurer has to do is file the rate hike with the state's insurance department, and it goes into effect, in this case on May 22.

Georgia's situation is far from unique, and it may be the "canary in the coal mine" as far as auto insurance rate hikes are concerned. April saw the biggest premium increase year-over-year since 2003, as prices rose 6 percent that month, according to Consumer Price Index monthly data.

What car insurance companies don't tell you about rates 04:06

Allstate spokesman Adam Polak said his company was "cooperating with the Georgia investigation" and said that only a few customers faced a 58 percent hike.

But he also indicated that Allstate's rate hikes clearly reflect what's coming down the turnpike for drivers in other states. Industry spokespeople aren't shy about saying car insurance is likely to go up, up, up. And while Georgia may be the first state to feel the pain in the pocketbook, it won't be the last.

Among the reasons: "More people are driving, lower gas prices and higher speed limits," explained Robert Hartwig, president of the Insurance Information Institute (III), a lobbying group for the property-casualty insurance industry.

And, he might have added, more fatalities. The National Safety Council (NSC) estimates that 38,300 people were killed nationwide on roads last year and 4.4 million were seriously injured. "2015 was likely the deadliest driving year since 2008," said the NSC, a nonprofit organization that promotes health and safety in the U.S.

Another factor is that auto insurers' profitability has been falling for a decade. Loss ratios for insurers have been rising for 10 years, according to the III's Hartwig. In flush times when interest rates are high, insurers can make this up from their vast investment portfolios. But the 2015 return on their net worth is likely close to zero -- or even negative.

It has been clear for some time that car insurance rates are going to rise, and GEICO, the second-largest domestic car insurer, has said in federal filings that it would be "implementing rate increases." The American Automobile Association (AAA) said in April that the premium for a married middle-age man with a good driving record had risen 10 percent in the last year.

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But Georgia seems to be a special case, and perhaps even a test case. In many not-so-insurance-friendly states like California, rate increases have to go through "prior approval," which in some instances requires a hearing before the state insurance commissioner. Georgia has made the process easier to get more car insurers to offer coverage in the state.

Georgia drivers also have a reputation for stomping hard on the gas pedal, according to the insurance industry, and its higher speed limits don't help.

"Fatal auto accidents in Georgia are rising at nearly three times the rate nationally," claimed an III position paper. And while the population density grew in urban areas like Atlanta, speed limits rose to 70 miles in some congested areas.

But the biggest insurance concern, however, is that Georgia was a "profitability laggard" in the region and nationwide.

During the Great Recession, car insurance premiums dropped nationally and only rose marginally in 2010 and 2011. But premiums increased as the economy improved and gas prices fell, with a big spike between 2014 and 2015, according to Robert Hunter, director of insurance at the Consumer Federation of America.

Hartwig argued that it isn't gas prices as much as the improving economy that's putting people on the road for longer hours and more miles. "People drive to and from work, and drive to entertainment," he said. "When they are out of work, they curtail their movement." Many auto insurers are now installing devices to see how far and where these people drive. Motorists who drive less receive better rates.

But one thing is certain: If your car insurance is costing 25 percent more, you're not really concerned about saving on gas.

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