Why You're Saving on Car Insurance

By TARA BAUKUS MELLO

Published: August 6, 2005

State Farm, Progressive, Allstate and other insurers have been tripping over one another with ads promising to save Americans money on their car insurance. Drivers can be forgiven for wondering what the catch is.



To be sure, not every driver can save 15 percent, as some insurers promise, but many are finding significant discounts. This year, auto insurance premiums will climb just 1.5 percent on average nationwide, an industry trade group estimates, the smallest increase in five years. Although costs of car repairs and medical care resulting from collisions are on the rise, the group says, they are tempered by fewer accidents over all and improved laws in many states to fight fraud.



"This has really become a competitive industry, so insurance companies are anxious to do everything they can to get more business," said Jean Salvatore, senior vice president of the group, the Insurance Information Institute.



For Stephen Reginald, 47, a book editor in Chicago, it took a persistent State Farm agent who was handling his homeowner's policy to convince him to switch the insurance on his 1993 Honda Accord. Mr. Reginald, who says he drives only when he travels out of the city, had been with Progressive, the third-largest auto insurer, since 2002. He chose Progressive initially, he said, because of the convenience of using its Web site after business hours. But Mr. Reginald was able to save about $200 annually by making the switch to State Farm. "It's really nice to have someone local," he said.



Some recent decreases in the cost of premiums can be traced to actions by state regulators. Most states require insurers to file rate plans annually in a process that is reviewed and approved or rejected by the state insurance commissioner. "It's the insurance commissioner's job, using modern data resources, to see if the rates that are filed threaten to inflate the market too much or put undue strain on the reserves," said Tim Wagner, a committee chairman for the National Association of Insurance Commissioners, an organization of state regulators. He is also director of the Nebraska Department of Insurance.



As Howard Mills, the superintendent of insurance for New York State, watched fraud rates decline steadily over the last two years, he said, it became clear that auto insurance rates needed to reflect the change. Mr. Mills met with insurers to discuss rate reductions and as a result, 70 percent of auto insurance customers in the state have had their premiums reduced, by 5 percent on average, since last year.



New Jersey's Department of Banking and Insurance overhauled its auto insurance regulations in 2003, after more than 40 insurers left the state during the previous decade. Since then, 56 percent of auto policyholders have experienced rate decreases, totaling more than $300 million in savings statewide, according to the 2005 auto insurance industry report issued by the insurance department.



Car owners often consider switching insurance providers when their policies are up for renewal or they need to add a driver or buy a new car. That gives insurers a chance to find new customers. Hence the onslaught of ads promoting the lower premiums.



"Generally, people renew with their current carrier, so insurers are trying to encourage people to compare and force a competitive marketplace," said Mark Presser, assistant deputy superintendent and bureau chief of the New York State Insurance Department.



Rates can drop for a variety of reasons. Texas, for example, has made some recent advances in fighting fraud, which will most likely accelerate the decline in rates. And thanks to some changes in state laws in 2003, more auto insurers are now doing business there. The new entrants have "increased competition, which has helped reduce rates over all," said the Texas insurance commissioner, Mike Geeslin.



The increased competition worked in Steve Gulledge's favor when he began pricing insurance while shopping for a new car. Mr. Gulledge, a musician in Spring, Tex., had his eye on an used Audi TT, but chose a less sporty sedan when he discovered that his auto insurance on the Audi would cost more than his car payment.



After weeding through offers and features like towing and rental car coverage, Mr. Gulledge, 24, found a couple of companies that beat the quote from his current State Farm agent. Ultimately, he said, he was able to convince his agent to sweeten the deal by giving him a loyalty discount and guaranteeing that so long as his driving record remained clean, his rate would drop $50 a month when he turns 25 at the end of the year.