Several major insurers, including State Farm, Allstate and Progressive indicate that due to increasing competition, motor vehicle rates are staying nearly stable or going down in Florida, or even going down slightly.
State Farm, the market leader in Florida, in February lowered its motor vehicle rates 2.7 percent, and an additional 0.2 percent in July.
National averages show that between 2000 and 2004, motor vehicle insurance increased across-the-board by 6 percent. The average policy jumped from $687 to $875 annually, per vehicle.
“The market for auto insurance is becoming very competitive,” Robert Hartwig, chief economist at the Insurance Information Institute told the Daytona Beach News-Journal. “Millions of consumers are likely to see a decrease this year.”
Hartwig pointed out that nationally, rates still are rising, but at their slowest rate in five years. Spending on auto insurance is expected to grow an average of 1.5 percent this year, to $870 per vehicle, according to the institute.
But many drivers are getting a break. Industry experts say price-cutting is occurring in many markets as companies seek to retain existing customers and attract new ones.
“I think we’re coming into a market where some companies will just slash prices to gain policyholders,” Matt Nellans, a Morningstar analyst said.
Nellans said insurers lost billions during a four-year span in the late 1990s, when premiums were stagnant. By 2000, insurers were paying out $1.10 in claims and expenses for every $1 in premiums, in an attempt to retain market share. They had been making up the difference in the booming stock market, but had to reverse course and aggressively raise rates after stocks tanked in 2000.
In the latest cycle, analysts say companies are being more cautious.
“We’re seeing a more prudent form of competition that is allowing insurers to lower premiums while remaining profitable,” Hartwig said.
An important factor is the growth of sophisticated pricing models. Insurers are spending millions on technology that allows them to crunch underwriting data to more accurately match price to a driver’s risk.
The result: They’re able to cut prices with a scalpel instead of a butcher’s knife, offering hundreds or even thousands of price points based on drivers’ potential risk, instead of lumping them into a few broad categories.
For example, one policyholder might get a lower rate than another driver with an identical driving record, vehicle and age because he or she has a slightly better credit score.
State Farm said last month it’s moving to a tiered system to match the pricing methods of its competitors.
Many insurers say the more nimble rate structures should help flatten out the whipsaw action of the insurance market.
“We don’t want to get caught up in a situation where we drop rates so much and that we have bring them way up a few years later,” said Vince Napoli, head of USAA’s auto insurance business. “The technologies we’re using to refine pricing is helping to smooth that out.”
Another factor taming auto insurance rates: Fewer accidents, which the Insurance Information Institute credits to safer vehicles. The number of vehicle crashes resulting in injuries dropped 14 percent between 1996 and 2003 — from 2.2 million to 1.9 million — even though there are more cars on the road and the total number of miles driven is up.
The trend allows insurers to pay out a smaller percentage of each premium dollar in claims and expenses — now down to 93 cents — and insurers are passing along some of those savings to policyholders.
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