State’s Auto Insurance Rates Drop Broadly, Agency Says
Auto insurance rates in California fell broadly last year and will continue to fall this year as insurers pass along cost savings to consumers while fighting for bigger shares of the lucrative market, the state Department of Insurance said Thursday.
A wide variety of factors ranging from an increase in competition and the use of anti-theft devices to a reduction in fraudulent claims and litigation have helped to push down rates. But not all drivers will see their premiums drop, and many consumer groups fault state regulators for failing to push harder for more and larger reductions.
However, the shift toward lower rates marks a dramatic change from an era when soaring prices triggered emotional public debate and resulted in the passage of Proposition 103 in 1988 to regulate and control insurance industry pricing.
“This is the first time in years that we are seeing reductions on this kind of scale,” said state Insurance Commissioner Chuck Quackenbush, who hailed his department’s effort to fight fraud and boost industry competition. “If [insurers] want to stay in California, they have to lower their prices. That’s where the market is going.”
Last year, some of the state’s largest auto insurers--such as Allstate, 20th Century and the Auto Club of Southern California--announced or adopted rate cuts averaging between 3% and nearly 7% for complete auto coverage. State Farm Mutual cut rates an average of 5.4%--the company’s first rate reduction since 1987, said spokesman Bill Sirola.
“We have made some major inroads into the fraud problem, and we have had an era of [safer] drivers and cars,” Sirola said.
Consumers with clean driving records will benefit the most from the lower rates. The Department of Insurance survey for 1996 showed a drop in premiums in every region of the state.
In Los Angeles, the average annual cost of liability coverage for a 30-year-old driver with a clean driving record fell to $978 from $1,009 in 1995. In Orange County, the average annual premium dropped to $680 from $729.
The drivers who have seen their auto insurance rates drop are eager for more reductions. George Kanno, a 68-year-old Gardena resident, saw his six-month premium fall to $571 this year from $664 in 1996. “I’m happy that my rates have come down, but I wish they’d come down a little more,” he said.
Consumer groups welcomed the decreases but criticized the insurance industry for not passing along their savings sooner. Bill Ahern of Consumers Union in San Francisco said that insurers have seen their costs drop 20% in the past five years and that the number of automobile accident lawsuits filed annually in California has dropped by about half since 1989.
“We are finally seeing rate reductions. It’s a good start and it’s about time,” he said.
Rates have dropped in response to new regulation, new companies entering the California market and existing insurers lowering premiums to expand their share of customers. Woodland Hills-based 20th Century Insurance cut its average rates 6.3% last year as it fought a tug-of-war for customers with Mercury General Group, a fast-growing Los Angeles insurer that reduced rates in 1995.
The increased competition was a major reason why Farmers Group of Insurance Cos. dropped its rates an average of 3% on Wednesday after raising them 3.3% in May, said spokeswoman Diane Tasaka. Farmers Group was able to lower its rates in part because it has reduced fraudulent claims and the growing use of anti-theft devices has cut down on losses, she said.
“If those trends continue, we will again lower rates,” she said.
Consumer groups also credit the impact of Proposition 103, which has resulted in dramatic but slow change in the way auto insurance premiums are set and regulated in California.
“People are just not as concerned [about the cost of insurance] because Proposition 103 has worked,” said Harvey Rosenfield, who authored Proposition 103 and is a frequent critic of the industry. “But there is more left to be done.”
Despite the most recent rate reductions, the cost of auto insurance in California remains high and out of reach for many motorists. Nearly 30% of the state’s drivers remain uninsured despite the cheaper coverage available, according to state estimates.
The new year will probably see more auto insurance rate reductions. Quackenbush on Thursday vowed to force auto insurers to pass along to consumers the savings of Proposition 213, which prevents uninsured motorists from suing for pain and suffering as a result of an accident. (They will still be able to file claims for actual damages.)
“All this is going to lead insurance premiums to go down,” said Quackenbush, who sponsored Proposition 213 on November’s ballot.
The creation of the California Earthquake Authority, which shifted much of the burden of quake coverage from private insurers to a quasi-government agency, might encourage more companies to expand their coverage in the state. That expansion could spill over into the auto insurance market by increasing competition and lowering rates for auto policies, said Blair Sanford, an insurance industry analyst at Hoefer & Arnett, a San Francisco-based securities firm.
“I don’t see competition in the state [decreasing] very much,” said Sanford.
Times staff writers Peter Noah and Emily Otani contributed to this story.
* NEW PENALTIES TAKE EFFECT: Uninsured motorists stopped for traffic violations face huge fines under new law. A3
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How Far Down? (Southland Edition, A23)
Auto insurance rates have dropped as insurance companies have cut costs and competition has increased. Here are some average rate reductions from last year:
Rate drop
State Farm Mutual: -5.4%
Farmers: -3.0%
Allstate: -6.9%
20th Century: -6.3%
Auto Club: -5.0%
Source: Statistical Analysis Bureau, California Department of Insurance
