Driving Is Down, but Auto Insurance Rates Are Rising - NYTimes.com

Driving Is Down, but Auto Insurance Rates Are Rising - NYTimes.com:

Gasoline prices are well above last year’s levels, and people are driving less. That would suggest fewer crashes, and a little relief for the struggling American consumer, in the form of lower auto insurance premiums.


But instead, many insurers are raising their rates, sometimes by large amounts.
“On average, they have been asking for a 7 percent increase” in New York, said Michael Moriarty, the state’s deputy insurance superintendent for property and capital markets.

North Carolina is pondering an industrywide request for a 13 percent increase. In Illinois, increases have been from 3 percent at State Farm to 13 percent at the United Services Automobile Association, which insures military families.

For several years, auto rates had been flat and even declining slightly, thanks to new safety features on cars and, in some places, campaigns against drunken driving and insurance fraud. Officials in states flirting with deregulation said increased competition had also kept rates down.

Some states, like California, say auto rates are still falling, but nationwide, the trend is upward, according to the Insurance Information Institute. It says premiums have risen at an annualized rate of 1.7 percent so far this year — a small amount, perhaps, but more than four times the rate of increase for the comparable period in 2007, before gasoline prices spiraled.

Only a few states, including New York, have challenged the increases, though several insurance departments say they have stepped up their scrutiny.
J. Robert Hunter, an insurance consumer advocate with the Consumer Federation of America, is urging state regulators to find out why rates are rising when Americans are driving, in total, billions of miles less than a year ago.

“As Americans drive less because of the price of gas, fewer claims will be filed with insurance companies,” Mr. Hunter said in a letter to the nation’s governors in June. “Whether this will mean windfall profits for insurers or rate cuts for the consumers is up to governors and state regulators to determine.”

Many state regulators are staying on the sidelines, having taken steps to deregulate auto rates in recent years, in hopes that competition will keep rates low. Some states do not preapprove rates, as New York does, but can take action later if they find an increase was inappropriate.

“A lot of them say, ‘We don’t regulate rates, so we don’t care,’ ” said Mr. Hunter, citing evidence that rates are lower in states where regulators exert a heavier hand.

Insurance companies say that their auto rates are based on their recent experience with claims, and that this year’s increases are justified. The reduced driving has not yet shown up in fewer accidents, they say, and meanwhile, other factors are increasing the overall cost of claims.

“Higher inflation, and the commodities price boom, increases the cost of steel, plastic, paint, aluminum, copper and everything else used to repair a vehicle,” Robert P. Hartwig, president of the Insurance Information Institute, said. “It also ultimately drives up medical and legal costs.”

While insurers track accidents closely, their data lags behind real time because it can take months to settle claims. The Department of Transportation has tracked big declines in driving through June, but the insurance institute has data on crash frequency only through March. Whether accidents declined over the summer will not be known until the end of September, Mr. Hartwig said.

Still, Mr. Hartwig, an economist, offered data from the 1970s to show what can happen when a spike in gasoline prices prompts Americans to curtail their driving. During the five-month Arab oil embargo of 1973 and ’74, car crashes did taper off, he said, but they rose almost immediately after the embargo ended. Meanwhile, the oil price shock spread inflation throughout the economy, driving up the cost of car repairs.

“Entrenched inflation can push up costs for many years,” said Mr. Hartwig, warning that the same thing could happen again.

The overall uncertainty about inflation is making it hard to evaluate insurers’ projections that their claim costs are about to rise.