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Auto Insurance Rates Decline: Insurer Competition, Safer Vehicles Key

16 May 2000

Auto Insurance Rates Decline: Insurer Competition, Safer Vehicles Key; Courts Decisions Could End Trend, I.I.I. Reports
    NEW YORK, May 15 Automobile insurance rates fell by 3.2%
in 1999, only the second decline since 1973.  In 1998, automobile insurance
rates fell by 2.8%.  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 (I.I.I.).
    While motorists with good driving records may see even bigger savings in
2000, many drivers may see increases.  "Costs associated with settling
automobile claims are on the rise," said Dr. Robert P. Hartwig, vice president
and chief economist, I.I.I.  Hartwig says rising medical costs, bigger jury
awards and a recent Illinois court decision that essentially bars the use of
aftermarket (generic) parts in automobile repairs could force policyholders to
pay more for their insurance.
    "The pace of medical inflation is up nearly 50% since 1997 while the
median jury verdict in vehicular accident cases is up 23%," said Hartwig.  "In
addition, insurers are now effectively prohibited from using generic parts of
like kind and quality in the repair of damaged vehicles -- a factor that could
ultimately add $4 to $5 billion annually to the cost of automobile insurance,"
he added.
    Auto insurance expenditure, which measures what the average consumer
actually spends for insurance on each vehicle, continues to fall at a slower
pace than auto insurance rates, which reflect the price of specific types of
coverage.  Average auto insurance expenditure fell by an estimated 1.0% in
1999 compared with a drop of 0.4% in 1998 and an increase of 2.3% in 1997.
    "The small decline in auto insurance expenditure is attributable to record
new car sales," said Hartwig.  "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 auto insurance expenditures 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
they likely purchased a new car during that period.  "Expensive SUVs and
trucks are accounting for an ever higher share of vehicle sales -- nearly 50%
today vs. 32% in 1987."
    Hartwig noted that despite rising costs, aggressive competition between
insurers will likely keep a lid on the cost of automobile insurance, leading
to an expected increase of just one percent in this year's average expenditure
for auto insurance.