State Farm Insurance Co., Louisiana's largest insurer, stopped selling new auto insurance policies in June, 2001, saying the state was delaying approval of a 16 percent premium rate increase.

Too-rapid growth in the state, leading to a deficit of $199 million, prompted State Farm to make the request, advising state regulators that the company could not remain in business under these conditions.

While the company did not, at that time, begin to non-renew any of the 1 million policies already in force with State Farm in Louisiana, the lack of new business accdeptance was expected to impact the availability of auto coverage for consumers. In addition, State Farm said it would renew or sell new policies only to existing customers, but continued to turn away new home insurance customers.

Louisiana officials delayed a decision on State Farm's rate request until September, 2000, finally approving a 14 percent increase for the company, a move company officials called "a step in the right direction." A report by State Farm actuaries advised that additonal rate hikes would be needed to provide the company with adequate premium to pay all claims for consumers, given the market situation at that time.

As a result, State Farm moved in January, 2001 for an additional rate hike of 9.6 percent for about 100,000 policyholders in its high-risk insurance program, and continued to file for additional rate increases in 2002 and 2003.

Higher costs for auto repair,including material and labor, and for medical care following accidents have led all auto insurance carriers to request rate increases over the past several years. The increase in medical costs alone have been shown by many industry sources to be the most prominent reason for increasing auto insurance rates.

However, a new report from the Insurance Information Institute, released in March, 2004, shows that companies have made substantial progress lowering fraud losses and abuse of medical costs, which is beginning to effect rate increase requests from carriers. While rate increases are still being requested, the average increase dropped to 3.5 percent in 2004, compared to 7.8 percent in 2003. Crackdowns in several states on auto fraud, leading to a massive number of arrests in New York alone, has also helped lower the costs to companies for auto insurance. Also aiding the improvement is the flat rate of auto thefts across the country, which increased only 0.9 percent in 2003, according to the III.

In addition, State Farm has improved results in many states so that the company actually cut average premiums in 10 states for 2004.

However, a disturbing trend across the country, as state legislators act to limit insurance companies use of credit information, geographic data and other types of specific information, may shift the cost of insurance back to a rising curve, according to the III.