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. ReportsNEW 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.