Insurance premiums declining for many drivers

Taking control
Indeed, analysts say auto insurers are in the driver’s seat this time around as they confront the first softening market in five years.

“We’re seeing a more prudent form of competition that is allowing insurers to lower premiums while remaining profitable,” Hartwig said.

An important factor in that prudence 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 — a factor increasingly used in determining premiums.

State Farm said last month it would move to such a tiered system in response to market share gains from competitors Allstate, Progressive Group of Insurance Cos. and others, which have been refining complex pricing models for years. 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.

So far, the combination of stabilizing factors has helped insurers resist the urge to go into all-out price wars to get market share.

“Some companies can get undisciplined and irrational and can pursue growth and abandon profitability,” said Allstate CEO Edward Liddy.

“We aren’t doing that and most of our competitors in the marketplace aren’t doing that. They’re pretty rational right now.”

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