If all of our neighbors would just drive even less, we'd get lower car insurance rates.
| Will reduced driving mean lower car insurance rates? |
| We asked the nation's top auto
insurers whether high gas prices and reduced driving are translating to
lower rates yet. Here are their answers.
State Farm spokesperson
Dick Luedke notes that State Farm rates have been on the decline
nationwide since 2004, but reduced accident claims are not yet leading
directly to further rate reductions: "Our actuaries look at claims data
not just to see the recent past, but also to see what might change the
future, like gas prices."
Luedke says there's no hard and fast rule as to
what level of accident reduction would spark lower car insurance rates,
but says, "If we saw a reduction as big as 10 percent in accident
frequency, we would have reacted long before that."
Allstate spokesperson
Kate Hollcraft says, "We have just recently seen a decline in
automobile claim frequency and if this continues through the summer
months, we would probably be able to attribute it to a rise in fuel
costs."
Progressive spokesperson
Leah Knapp says, "We don't speculate about future rate changes, but it
would be accurate to say that we continuously review market and
business conditions, including monitoring losses, so that we can ensure
our policies are accurately priced everywhere we do business. When our
analysis suggests our rates require adjustment, we may seek to either
raise or lower rates accordingly."
Nationwide Vice
President & Policyholder, Standard Auto Product & Pricing,
Larry Thursby, observes that "customers are having fewer accidents."
But he notes it's been that way for a couple of years due to a variety
of factors, like an aging population that becomes safer drivers,
graduated licensing laws for teens and crackdowns in drunk driving. In
addition, potential rate reductions due to accident frequency are being
offset by inflation in the usual suspects: medical and hospital costs,
repair costs and legal costs.
Thursby says that Nationwide has been passing
along cost savings by offering guaranteed renewability, lower
surcharges and broader "forgiveness" for accidents, fender-benders and
minor violations.
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And that could be in the process of happening.
When Americans spend less time on the road, the frequency of car
accidents declines. And when car accidents go down, so do claims on car
insurance. That gets the ball rolling: When auto insurers see their
costs on claims declining steadily, they typically respond to market
conditions by lowering their rates in a bid to stay competitive. And voila!, we write smaller checks for our car insurance premiums.
With run-away gas prices, Americans are already
driving less. The Federal Highway Administration (FHWA) reported in May
2008 that Americans are driving at "historic lows." The estimated
"vehicle miles traveled," or VMT, for March 2008 fell 4.3 percent
compared to March 2007, making it the sharpest dip for any month since
the FHWA began tracking traffic-volume trends in 1942. (Want to follow
driving trends? The FHWA publishes monthly "Traffic Volume Trends.")
When accident claims go down, auto insurers can
usually respond fairly quickly. To adjust premiums, they must file new
rates with every state in which they operate. They can file new rates
any time they want to respond to market conditions, and many states
offer a "file and use" system, where auto insurers can file new rates
and begin using them immediately without the state insurance
department's prior approval. Some states even have a "use and file"
system, so auto insurers can implement new rates and then officially
file them shortly thereafter. This way auto insurers can begin passing
on savings (or increases) right away.
The nation's largest auto insurers are the first to
see trends in accidents and claims payments due to the sheer volume of
their claims data. For example, State Farm, the nation's largest auto
insurer, handles about 19 million auto claims a year (that's a little
over 17 claims per minute, all day, every day).
If you live in a state that requires "prior approval," it would take a longer time to see rate reductions.
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Robert Passmore, Director of Personal Lines for
Property Casualty Insurers Association of America (PCIAA), an industry
trade group, says, "This is where you see competition kick in." He
notes that if you live in a state that requires "prior approval," it
would take a longer time to see rate reductions. That means
Californians and New Yorkers could be tapping their toes waiting for
rate reductions while everyone else pockets savings.
Auto insurers also note that car insurance rates
have been holding steady or declining over the past few years anyway.
For example, State Farm customers in all states have seen rate
reductions between Jan. 1, 2004, and Dec. 31, 2007, and customers in 39
of those states saw double-digit percentage rate decreases. (State Farm
policyholders in New Jersey got the biggest drop of 29.19 percent.)
Passmore cautions that other factors could offset
the trend in reduced driving — specifically, medical costs from bodily
injury claims, legal costs relating to claims disputes and repair costs
that are, for now, rising faster than the rate at which accident claims
are going down.
Darn those repair, medical and legal costs! If it
weren't for those, drivers could already be seeing lower car insurance
rates (as we sit at home). However, insurers generally agree that if we
see significant accident reductions, lower rates won't be too far behind.
Perhaps at the $6-a-gallon mark?
