Car Insurance

Fewer car accidents, new anti-theft technology and safer cars are lowering car insurance rates across the country this year for the first time since 1999.

The better news: Rates are dropping significantly in New York, thanks to a crackdown on fraud and much keener competition, according to insurance industry experts.

Nationwide, claims were down 3 to 5 percent in 2006 and the average cost per claim, a figure that includes the price of medical care and property damage, rose only 2 to 4 percent, according to Michael Barry of the Insurance Information Institute.

In New York, declining rates have spawned an advertising blitz in which the top players - Geico, Allstate and State Farm write almost half of local policies - are battling for market share.

While Geico did not return requests for comment, The Wall Street Journal estimates the firm spent as much as $400 million on marketing in 2005, including the sponsorship of Geico SportsNite, a daily highlight show on SportsNet New York. Earlier this year, the firm paid $1.6 million in a two-year deal that places the Geico name on each tollbooth at the George Washington Bridge and gives it space on the Port Authority’s Web site.

“It’s hard to quantify how much is spent on advertising, but look what’s going on,” Barry said.

“New Yorkers are getting bombarded with direct mail, television advertising and every other form of advertising. Even a casual observer knows this is good for consumers.”

Long Island-based TSC Direct, which sells car insurance in New York City and Long Island, has also turned up the heat, flooding local newspapers and radio waves with a cure for “reptile dysfunction” in a Viagra-inspired swipe at the Geico gecko.

“We have to do something in order to be heard,” said Penny Hart, the firm’s president. “We have no choice.”

TSC, a unit of Jericho-based Tri-State Consumer Insurance Co., boasts that it can save consumers as much as 35 percent on car coverage. It charges an average $890 per year, about 20 percent lower than three years ago, according to Hart.

Hart said the company’s 16,000 auto policyholders pay less today because the state has been significantly more aggressive in fighting fraud.

“It’s a culmination of lots of reasons, including the change in New York’s no-fault laws,” added Bill Goff, a New York-based product manager for Allstate, which has dropped rates by 5 percent in each of the last two years. “But fraud detection plays a large role.”

In 2004, fraud cost insurers $1 billion in New York alone, according to the insurance institute’s Barry.

“The state, along with law enforcement, took a much harder look,” he said. “And it’s saved ratepayers a lot of money.”

Despite the decline, New York remains near the top of the cost list. In 2004, the latest statistics available, the average New Yorker paid $1,171.62 to insure a car, the third highest rate in the country.

New Jersey, at $1,221.08, and the District of Columbia, with an average rate of $1,184.63, topped the list. New York had held the second-most expensive spot on the list in previous years.

Remember insurance brokers, that mysterious breed of financial adviser who used to maintain offices on every high street? New technology and the modernisation of the financial services industry were supposed to spell the end for these middlemen, whose job it was to search the market for the best deals on insurance.

Brokers, however, are making a comeback, particularly in the motor insurance market. The launch of insurers that deal direct with the public - the approach pioneered by Direct Line - has failed to kill off the intermediary sector. So has the latest threat - the emergence of online price comparison sites that give you car insurance quotes in seconds at home. Peter Staddon, head of technical services at the British Insurance Brokers’ Association (Biba), says: “The private motor industry is worth [pound]5.8bn and brokers now account for a third of all policies.”

At first sight, online price comparison services offer the perfect solution if you’re shopping around for car insurance. You enter all your details once and the sites search the market for the best possible price. However, there are flaws with the model. For one thing, if your case is at all non-standard, the site’s generalised questionnaires won’t give you a meaningful quote that you’ll be able to convert into genuine premiums.

Far more people are non-standard cases than you might think. The list includes anyone driving a car that has been modified in any way, as well as any imported cars.

Even more significantly, you’ll also find it difficult to use online price comparison sites to get realistic quotes unless your driving licence is clean. If you’re one of millions of drivers with points on your licence following a speeding offence, for example, the sites won’t produce a useful result, because most insurers won’t quote online for such cases. Given that 2.2m speeding convictions were handed out last year, a huge minority of drivers are effectively barred from using the internet to shop around for cheaper insurance.

To add insult to injury, if you are a non-standard case, it’s actually more important to scour the market for the best possible deal, because insurers have such different policies on who they want to cover and how much it will cost. Some insurers charge no additional premiums for drivers with one speed camera conviction, but raise prices sharply for two or more offences. Others rack up charges on the first offence.

The same is true of other non-standard risks. Most insurers won’t even consider applications for cover for non-standard cars, or vehicles that have been modified. Those general insurers that do cover such risks are likely to charge far more than specialists in this market.

Even young drivers can be caught out in this way, because only a minority of insurers are interested in their business. Searches on price comparison sites won’t capture the deals offered to young drivers, such as Norwich Union’s pay-as-you-go policy. Staddon also argues that buying motor insurance on the basis of price alone can be a false economy. Brokers, he points out, have a relationship with insurers that means they understand the intricacies of each compa- ny’s policy - and they can act as your advocate when you make a claim.

Typically, a broker has a relationship with some, but not all the insurers in the market. For this reason, Biba suggests getting quotes from three separate brokers. Brokers charge a commission - typically 10 per cent of your premium - but they must be open about the costs.

“Brokers particularly come into their own when you need someone on your side to deal with an insurer,” Staddon says. This week alone, one of his members dealt with an insurer refusing to pay out when a driver was pulled from his car by a thief while about to set off on holiday with a fully-loaded vehicle. The insurer initially refused to pay out because keys were in the ignition. “Our mem-ber was able to call the chief executive of the insurer in question direct to insist this wasn’t acceptable,” Staddon says.

Brokers and price comparison sites don’t have to be mutually exclusive. It’s worth using the sites to get an idea of what you might have to pay. In many cases, however, a good broker should be able to match these deals - plus you’ll get a service too.

‘A better service than the internet’

When David Shaw, a solicitor from north London, received his renewal notice from Direct Line, he was shocked to discover a 10 per cent increase in his annual premium. Despite having five years of no- claims bonus, the insurer wanted more than [pound]630 to insure his Skoda.

“I’ve been meaning to shop around for a better deal for the last few years, but I’ve never quite got round to it,” David says. “This time, I was determined to see if I could save money, so I logged on to two internet sites I’ve seen advertised.”

Unfortunately, neither Insuresupermarket.com or Confused.com were able to give David a full range of quotes. While his details were relatively standard, David has six penalty points on his licence, following two speed camera offences in the past three years.

“This seemed to take me out of the net as far as online price comparison services went. In the end, I decided to approach a broker to do the work for me.” James & Browne, a Coventry-based firm of insurance brokers, were able to use their technology to get quotes from a panel of car insurers. They saved David around [pound]30 on his car insurance.

“The saving wasn’t that huge,” says David. “But this was the first time I’d ever used an insurance broker - I found it far easier than using an internet-based service.”

Motor insurance premiums look set to edge up in the coming year after insurers said yesterday that competition for business meant that they risked losing money on the policies they sold.

But holders of household insurance policies were offered a small ray of hope that the downward trend in the cost of their cover is set to continue, the Association of British Insurers said.

John Carter, chairman of the ABI, the industry’s trade body, said: “General insurance policyholders have received major benefits from an extremely competitive insurance market over the past two or three years in terms of lower premium and improved cover. I am not sure that can continue.”

The ABI’s warning of higher prices for car drivers came as it released figures showing that the industry made overall losses of pounds 34m in the UK market last year on premiums of pounds 5.94bn. This compared with a pounds 297m profit on income of pounds 6.37bn in 1994.

The trade body yesterday attributed the bulk of the premium fall to the scramble for business among insurers.

On the non-motor side, including household insurance, profits also dropped substantially in the UK, down to pounds 403m in 1995 from pounds 950m the previous year.

A large slice of the profits downturn followed the cold winter weather, mainly in Scotland, which has so far led to claims worth pounds 320m. Many more claims, mainly for business interruption, have yet to be determined.

Mark Boleat, director general of the ABI, said yesterday: “Premiums fell in many other classes of business, while insurance companies achieved good profits.

“Loss prevention measures played a major part in achieving this satisfactory position. However, insurance is sometimes an unpredictable business, as shown by the significant increases in subsidence and winter damage claims.”

Insurers have tried to smooth out some of the losses by including much of the payments made so far in last year’s accounts, where they have been buried by large profits reported at the time. But some said yesterday that if last year’s hot summer repeats itself, subsidence claims will rise even further.

Separately, life insurance companies reported an end in sight to the poor sales that have bedevilled the industry in the past three years.

Net premium income in the UK for life and pensions business reached pounds 44bn, up 3 per cent on 1994.

Motor insurance premiums are set to rise after a steep 18-month fall in prices, according to research by the Automobile Association’s insurance arm.

Although the average cost of cover fell more than 2 per cent in the year to July, premiums rose by 1.5 per cent in the past quarter, a survey of 37 different insurers showed yesterday.

The potential turn in the market has, however, left household policies unaffected. Premiums continue to fall, recording an average annual drop of more than 4 per cent.

Mark Wood, managing director at AA Insurance, said: “It may be a little early to suggest that car insurance premiums are definitely moving up again.

“But the movements of the past few months suggest that after two years of cost-cutting and loss-leading among some insurers aiming to win market share, the market may be firming up again.”

The move towards firmer motor premiums comes as some insurers who recently began telephone-based cover attempt to stem vast losses suffered in their bid to capture market share.

Steven Bird, insurance analyst at Smith New Court, said: “Some motor insurers have clearly plucked up enough courage to implement rate rises in the second quarter.”

His comments came despite an announcement by Direct Line, the UK’s biggest telephone-based insurer, that it is to cut rates by up to 20 per cent for new and existing policyholders.

The company said the reductions would involve discounts of up to 10 per cent for restricting cover on named drivers.

Further premium cuts will apply to some car models, plus 150 lower-risk postcodes.

A Direct Line spokesman said that about 50 per cent of UK drivers stood to benefit from the reductions by an average of 5 to 10 per cent.

But he admitted that, in a bid to offset share price falls by Direct Line’s parent, Royal Bank of Scotland, when the rate cut was revealed on Tuesday, the insurer briefed analysts saying that the aggregate annual reduction would only be 1.5 per cent. At close yesterday, RBS shares were down 5p to 432p, after an 8.5p drop on Tuesday.

“What we have been saying is that if the cuts were simply applied to our existing policyholder base, this would lead to an overall reduction in premiums of 1.5 per cent,” the spokesman said. “But we anticipate the cuts will apply even more to new customers. We are expecting more than three million calls for quotes in July, August and September.”

The Progressive Direct Group of Insurance Companies Continues to Advance the Science of Auto Insurance Pricing; Announces Driving Discount Program in Iowa

Many auto insurance companies ask customers to estimate their annual mileage when applying for a new policy; these up-front estimates generally have a minimal influence on the overall premium. And, these companies don’t ask for updated mileage readings over time. But what if your insurance company asked you to report exact mileage readings over time and, by doing so, you could control how much you pay for car insurance by controlling the number of miles you drive?

The Progressive Direct Group of Insurance Companies today announced a pilot program in Iowa that gives drivers the ability to do just this.

Progressive Direct has data that supports that there is a correlation between the number of miles customers drive and the likelihood of their being involved in a crash - if you drive less, your chances of being involved in an accident are lower. This information, when combined with other information used to price car insurance policies, could help advance the science of insurance pricing making rates even more accurate and tailored to individual drivers’ behavior.

How the Pilot Program Works Progressive Direct customers who volunteer to participate will be asked to periodically submit odometer readings on the insured vehicle(s) they sign up for the program. It’s easy - customers simply log in to a password-protected Web site and enter their current odometer reading. Customers will report odometer readings when buying a policy and again at each renewal of the policy, or once every six months. Customers have the option of signing up all or just some of the vehicles on their policy.

What Discounts are Available

All customers will receive a five percent “participation” discount on a vehicle’s total premium simply for signing up the vehicle(s); this discount will be applied to every renewal policy as long as they continue to report their odometer readings. They may also receive an additional mileage discount of up to 10 percent, depending upon the number of miles driven, which will be applied to future policy terms. In all, customers could receive as much as 15 percent off a vehicle’s total premium for a six-month policy. With the average Iowa driver paying about $670 a year for auto insurance, that’s a potential savings of about $100 a year.

“This pilot is a win-win for everyone - all drivers can reduce their insurance costs simply by participating and, if they drive less over time, can save even more. We also have the opportunity to gather mileage data, which will help us better understand the correlation between how much a person drives and how likely they are to get into an accident,” said Ian Forrester, Iowa product manager, Progressive Direct. “We’re always looking for ways to more accurately price auto insurance and this program is just another way to achieve this goal.”

How to Sign Up

New Progressive Direct customers in Iowa may sign up for the odometer discount within 30 days of buying the new policy; existing customers may sign up at or within 30 days of renewal. After signing up, they’ll immediately receive the five percent participation discount which will be applied during the current policy term; this participation discount will continue on every renewal as long as they submit one mileage reading per policy term. Then, depending upon the miles they drive during that current term, they will be eligible for the additional mileage discount which will be applied during the next renewal term. Customers can share mileage data for as many consecutive policy terms as they’d like during the length of the pilot program.

As with all of Progressive Direct’s product research and development efforts, drivers have the choice of participating in the odometer pilot program. All customers who sign up will receive a five percent discount just by sharing their odometer readings and no one in the program will wind up paying more for their insurance than they currently do. For example, if you think you drive 10,000 miles a year and therefore would be eligible for a seven percent discount, but you actually drive 20,000 miles, you will not be charged more for your insurance. Instead, you’ll receive just the five percent participation discount but no mileage discount. Progressive will continue to offer its traditional auto insurance policies to customers who choose not to sign up for the pilot.

This pilot is the latest effort by Progressive Direct to gather data with the goal of better understanding the correlation between driving behaviors and the risk of being involved in accidents. The Company is currently testing a usage-based auto insurance discount pilot program in Minnesota called TripSense(SM), in which drivers voluntarily share driving data in exchange for receiving discounts on their renewal policy. The data is collected by a small device called a TripSensor(TM) that records information about how often, how fast and when their vehicle is driven, along with information about acceleration and braking. In addition, a countrywide driving habits research study is underway that uses the same technology to gather the same kind of driving data; customers are reimbursed $50 for voluntarily sharing six months of data from each car in the program.