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Auto Insurance Rates Decline

4 May 1999

Auto Insurance Rates Decline; Insurer Competition, More Skilled Drivers and Safer Vehicles Key, I.I.I. Reports

    NEW YORK, May 4 -- Automobile insurance rates fell by 2.8% in
1998, the first decline since 1973.  Among the factors driving the
deceleration include competition between insurers, more skilled drivers on the
road, safer vehicles, diminished tolerance for driving under the influence,
falling car prices and anti-fraud efforts on the part of insurers and states,
according to the Insurance Information Institute.
    Auto insurance rates are expected to fall an additional 4.5% in 1999, and
motorists with good driving records may see even bigger savings.  But auto
insurance expenditure, which measures what consumers actually spend for
insurance on each vehicle, continues to rise, although at a slower pace than
in previous years.  Average auto insurance expenditure rose by an estimated
0.5% in 1998 compared with 2.1% in 1997.
    "The increase in auto insurance expenditure is due to record new car
sales," said Dr. Robert P. Hartwig, vice president and chief economist I.I.I.
"New cars are more expensive than old ones and so is the insurance.  Moreover,
new cars have loans or are leased and require full comprehensive and collision
coverage.  These coverages may have been dropped on older vehicles."
    Hartwig added that expenditures on automobile insurance are affected by
many factors besides rate changes, including driving record, price trends for
new and used vehicles, eligibility for discounts, consumer automobile
purchasing trends (e.g., cars vs. SUVs), and consumer choice of elective
coverages (e.g., collision, comprehensive).
    According to Hartwig, the typical two-car family in the suburbs is
probably paying more for auto insurance than they were a few years ago because
more than likely they purchased a new car during that period.  "In addition,
expensive SUVs and trucks are accounting for an ever higher share of vehicle
sales -- nearly 50% today vs. 32% in 1987."  Hartwig noted that aggressive
competition between insurers may push the average expenditure for auto
insurance down by 1% this year, despite continued strong demand for new cars
and trucks.
   Other factors affecting auto insurance prices include traffic density, tort
liability laws, medical costs and auto collision repairs.
    The Insurance Information Institute is a fact-finding, communications
organization sponsored by the property/casualty industry.  To learn more about
saving money on insurance or to see if you are carrying the right coverages on
your automobile, home or business, visit the I.I.I.'s web site at http://www.iii.org.

                       INSURANCE INFORMATION INSTITUTE

              Year         Expenditure    Change(%)

               90             $574           NA
               91             $596          3.8%
               92             $618          3.7%
               93             $637          3.2%
               94             $651          2.1%
               95             $668          2.7%
               96             $691          3.4%
               97             $706          2.1%
               98*            $709          0.5%
               99*            $702         -1.0%

    Source: I.I.I. calculations based on data from the National Association
            of Insurance Commissioners and the U.S. Bureau of Labor
            Statistics.

    Factors Driving the Deceleration in Auto Insurance Expenditures

    -- Competition between insurers
    -- Baby boomer population aging.  Tend to be involved in fewer accidents
       as they age.
    -- Relatively fewer teenage drivers
    -- Anti-fraud efforts on the part of insurers and states
    -- Safer vehicles
    -- Diminished tolerance for driving under the influence
    -- Declining average price of new cars

    *  I.I.I. estimates.