The Insurance Information Institute (III), an industry information group, says that 1999's auto insurance rate decrease of 3.2 percent was due mainly to competition among insurers, more skilled drivers, safer vehicles, lower car prices, antifraud campaigns, and fewer DUI occurrences. Robert Hartwig, vice president and chief economist at the III, also notes that the amount consumers actually spend on auto insurance — called auto insurance expenditure — has decreased from $702 in 1998 to an estimated $695 in 1999. But will the savings continue?

Short-lived savings?

Hartwig predicts that although good drivers will likely see "even bigger savings in 2000, many drivers may see increases" because of rising vehicle-liability jury awards, rising medical costs, and the $1.2 billion State Farm auto-parts verdict from October 1999 (being appealed by the insurer), which found that State Farm's use of aftermarket crash parts was fraudulent. Hartwig explains that the median jury verdict award in vehicle liability cases is up by 23 percent since 1997, to $20,725, and that because of the State Farm verdict, "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 billion to $5 billion annually to the cost automobile insurance."

What's more, SUV-mania is likely driving up the cost of insurance. SUVs and trucks account for almost 50 percent of new-vehicle sales, compared to 32 percent in 1987, according to Hartwig, and because these vehicles cost more to insure, that means higher insurance costs.

A closer look at the numbers

Despite the recent upward swing in jury awards, the median jury verdict award in vehicle liability cases has actually decreased by 39 percent since 1992, from $29,000 to $20,725 last year, according to LRP Publications' Jury Verdict Research 1999 report.

In addition, while a $5 billion auto insurance increase might sound like a huge stack of cash, it represents a modest 4 percent of the total premium sold ($118 billion), according to Karen Davies, senior analyst at Moody's Investors Service. Although Davies concedes that insurers are heading toward higher premiums because of the higher cost of vehicle repairs, "it will be more difficult [to increase insurance premiums] because of the direct writers" — insurers who sell policies via 800 numbers and the Internet and who provide stiff competition.

Hartwig of III predicts, too, that the car insurance price war will "keep a lid on the cost of automobile insurance, leading to an expected increase of just 1 percent in this year's average expenditure for auto insurance."