It’s a Buyer’s Market for Auto Insurance

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Fewer accidents on state roads translate into lower rates, which are not hard to find.

Getting too much junk mail touting low automobile insurance rates? Being bombarded by television commercials featuring a cute gecko? Think of them as opportunities, not just irritations. California is enjoying a buyer’s market for auto insurance. And consumers can find bargains — whether they comparison shop, pick up the phone, check out the Internet or just ask around.

"There’s a lot of competition in auto insurance, and that translates into better rates and more options for the consumer," says Amy Bach, executive director of United Policyholders, a San Francisco advocacy group.

But beware: Buyers who aren’t careful could also wind up paying more than twice as much as they should for the same coverage if they pick a high-cost insurance company over a low-cost one, according to an online price comparison feature sponsored by the California Department of Insurance, The site allows shoppers to input data to get a roughly individualized premium estimate.

The survey of 48 insurance companies shows that the state’s major
insurance companies have widely differing rates for sample
policyholders. For a Culver City middle-aged male with a clean driving
record and a Honda Accord, the cost for full coverage ranged from a low
of $929 a year to a high of $3,709.

The site also shows estimated premiums for other types of customers,
such as a single woman from Highland Park with one ticket or a senior
citizen married couple from Long Beach.

The continuing drop in premiums even surprised me, a careful watcher of insurance rates.

In March, I shopped around and found a premium that was $200 less per
year than the competitively priced policy I had purchased last fall.

"It’s never been easier to shop," says Robert Hartwig, president and
chief economist for the Insurance Information Institute, an
industry-backed clearinghouse in New York.

auto insurance premiums in California have been dropping for years.
They declined 17% between 1996 and 2006, after being adjusted for
inflation, according to state regulators. Industry analysts say the
trend continued through at least the third quarter of last year, though
official numbers for 2007 are not yet available.

Why the dramatic plunge? Because it’s been safer to drive in recent years.

number of most types of accidents declined from 2002 to 2006. According
to the California Highway Patrol, total collisions dropped by 4.7%
during the five years, injury accidents fell 17.2%, and property-damage
accidents were down 3.1%. The lone increase was in fatal accidents,

Experts credit safer cars equipped with multiple air bags
and dozens of other protective features. Additionally, they point to
better designed roads and bridges, new laws that limit time behind the
wheel for accident-prone teenage motorists, and aging baby boomers who
have become more careful drivers.

And a new law will soon take
effect that could help reduce accidents further. On July 1, California
drivers will be required to use a "hands-free" system whenever they use
a cellphone in a moving vehicle.

While the trend overall is
downward, insurers and agents say they are already beginning to see
evidence that an upward tick in rates might be on the horizon,
principally because of an increase in the severity of injuries from
accidents and inflation in medical costs. But they say it’s too early
to tell whether the market will "harden" with a generalized rate

While some companies recently have won Insurance Department approval to raise rates, others are still lowering premiums.

last week Insurance Commissioner Steve Poizner announced that Los
Angeles-based Mercury General Corp., a low-cost insurer, had lowered
rates 3% for its 1.5 million customers, mainly in Southern California.
In all, Poizner claims to have prodded insurers into cutting auto rates
by about $1 billion in 2007 and so far this year.

He predicts that more premium reductions could be on the way "because of how healthy the market is."

policyholders, who already are struggling with steep increases in
gasoline and food prices, "won’t have to worry about the cost of their
insurance," Mercury Chairman George Joseph said.

Even though
motorists are paying more at the pump, they still might be able to keep
down the cost of operating a car and lower their insurance bill by
changing their driving habits. They can, for instance, avoid short
trips, carpool and take public transit. Driving less lowers the
statistical risk of getting into an accident, and that should mean
lower insurance premiums.

"If you’ve stopped driving over 10
miles to work, your rates might be 15% lower," said J. Robert Hunter,
the top insurance expert at the Consumer Federation of America in

Under new rules, California rates must be based
mainly on a driver’s safety record, years of driving experience and
annual number of miles driven; not on the ZIP Code where a car is
principally parked.

The new criteria, which take full effect in
mid-July, have been a focus of legal contention between regulators and
insurance companies since voters approved the Proposition 103 ballot
initiative in 1988.

Insurers like to grouse about government
regulation. But that hasn’t kept them from cutting their premiums in a
scramble to gain a larger share of California’s $20.3-billion annual
auto insurance market, the nation’s largest.

Despite lower rates
and the most stringent government regulation in the nation, California
auto insurers have remained profitable. They earned an average of 10% a
year from 1997 to 2006, according to a study by the Consumer Federation
of America.

Proposition 103 "does not mean that insurance
companies can’t be comfortably profitable in this state," says Douglas
Heller, executive director of Santa Monica-based Consumer Watchdog.

103 actually helped insurers to grow by creating a stable, healthy
market, contends Harvey Rosenfield, the initiative’s author and founder
of the organization, previously known as Foundation for Taxpayer and
Consumer Rights.

Efficiency and finding new markets are keys
to boosting the bottom line. Tech-savvy companies like Geico and
Esurance are cutting expenses by eliminating commissions paid to agents
and selling policies online, directly to customers.

companies are generating new revenue by concentrating on marketing to
Hispanic drivers, who may prefer to deal with a neighborhood agent,
industry experts and executives say.

"We’re a niche player
interested in people who want to do all their financial services
online," says Kristin Brewe, director of brand and public relations for
Esurance. Total annual written premiums at the 9-year-old, San
Francisco-based insurer rose from $4 million its first year, 2000, to
$800 million in 2007.

Esurance recruits customers by relying on
a television ad campaign that features the animated adventures of a
female action heroine. "Erin" constantly battles "high-priced
insurance" monsters before she swiftly buys and prints a new policy and
speeds away in her car to fight another day.

"Auto insurance is
really boring to most people. Nobody takes the time to think about it.
They want to buy it and have it disappear," says Esurance’s Brewe.
"But, now, it’s easy to buy on the Internet. They can save a lot of

How to save on car insurance:

* Shop around. Don’t buy the first policy quoted. Don’t automatically renew existing coverage.

* Compare rates using toll-free numbers and Internet sites. Make sure the rates are for the same coverage and deductibles.

* Consider raising your property damage deductible to $500 or $1,000.

* Drop collision and comprehensive coverage on older cars.

* Accurately estimate annual miles driven. You may be driving less than you think and should be paying less.

* Look for professional, auto club and other membership discounts.

Contact the author at: [email protected]

Consumer Watchdog
Consumer Watchdog
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