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Numerous states mandating auto insurance premium cuts

Numerous states, including North Carolina and Massachusetts, have recently begun mandating decreases in auto insurance premiums.

North Carolina’s Insurance Commissioner, Jim Long, issued an order in December 2005 requiring the state’s auto insurers to reduce rates by 2.5% effective May 15. This is after the Department of Insurance negotiated a zero percent change in rates for 2004 after the North Carolina Rate Bureau initially requested a 12.3 percent increase. In 2003, a 15 percent decrease was agreed upon after an initial request of a 10 percent decrease.

"The commissioner's latest rate reduction announcement continues to make North Carolina a tough state for auto insurers to manage their risks and get any return on their investment," said National Association of Mutual Insurance Companies Senior State Affairs Manager David Reddick. "It is unfortunate that one individual is keeping companies from operating in a more competitive marketplace." State Farm spokesman Dick Luedke agreed saying, “We believe that the marketplace should determine rates based on claims experience and not be determined by a departments of insurance.”

The reductions occurring across the United States are largely in response to reduced accident rates and increased competition, according to industry insiders. The Ohio Department of Insurance reported decreased auto rates of 1.6 % in 2005.  Ohio’s largest insurer, State Farm, had average reductions of 4.3%.  American Family Insurance also has announced an 18% decrease in auto rates for 2006 on its Ohio business. “We did it to some degree because of decreasing claim costs and to remain competitive with the rest of the market,” according to Steve Witmer, American Family spokesman.

In joining North Carolina and Ohio, Massachusetts Insurance Commissioner Julianne Bowler has instituted an 8.7% statewide cut of auto insurance rates for 2006.  The reduction is much more than the 0.1 percent cut recommended by insurers, but falls short of the 18 percent decrease advocated by Attorney General Tom Reilly.

NJ market rebounding

Even the volatile auto insurance market in New Jersey has seen rate decreases. 
"New Jersey was once the poster child for how not to regulate a healthy auto insurance market," said Richard Stokes, regional vice president for Property Casualty Insurers Association of America.  "As a result, consumers had very few companies to choose from and paid more than they had to for their coverage.  Today, just two years after the 2003 reforms took effect, there are more companies writing more policies for more drivers than ever before,” Stokes said.

For its New Jersey business State Farm instituted a 3.7% auto insurance rate decrease effective January 1, 2006, and following that up with a 7.4% reduction planned for August 1. “The decreases are due to improved claims experience,” according to spokesman Luedke.

The reforms and rate reductions "translate to more heated competition. That hasn’t been the case in New Jersey for decades and it’s a direct result of the reforms enacted in 2003,” said Stokes.

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