The personal auto market remains competitive across the country,even as rates begin to creep upward. Experts in the field said theyexpect competition to continue throughout the year and into2010.

As with most other industries, the economy continues to be afactor in the personal auto market. Most observers said this isprimarily being seen in the spending habits of consumers, as theyforego the purchase of a new car or seek to save on insurancecoverage.

In general, though, those in the industry said they have notseen any dramatic change in the marketplace compared to a year ago,and they predict only minor tweaking going forward, rather than anywholesale market shifts.

Insurers are seeing some deterioration in performance in termsof combined ratio, according to Robert Hartwig, president of theInsurance Information Institute, but “not extraordinarily so.” Thedeterioration, he said, is due to rising claims costs, which insome states has more than offset declining accident frequency.

Accident frequency is down, according to Mr. Hartwig, becausepeople are driving less. Initially, he said this was due to highgas prices. But in the last six-to-nine months, Mr. Hartwig saidthe economy is the reason.

The economy has also caused consumers to stop buying as many newvehicles. Mr. Hartwig said growth in the personal auto insurancemarket will slow because the number of new vehicles sold is fallingand there are more cars being taken off the road than put on.

Derek Ross, a spokesperson for the Independent Insurance Agentsand Brokers of the West and vice president of CM Meirs Co., anindependent agency in Woodland Hills, Calif., said he, too, hasseen a reduced number of vehicles on the road. At the same time, hesaid, consumers who are buying are not replacing their old vehicleswith vehicles of the same quality. “So we're seeing a lot ofdownsizing in the quality” of the types of vehicles on theroad.

Speaking to the declining number of vehicles on the road, Mr.Hartwig said, “This has not happened in decades.” He noted theremay be a “pent-up demand” for new cars when the economy turns, andhe added that insurers will be able to meet that demand when thetime comes.

But while experts agree there are fewer new car purchases, notall agree that this necessarily translates to fewer cars on theroad. Richard Luedke, spokesperson for State Farm, said people arenot buying as many new vehicles, but they are holding onto the carsthey have longer, so there is essentially the same number of carsto insure.

Agents have reported some changes in purchasing decisions amongconsumers because of the economy. James Berliner, vice president ofthe Professional Insurance Agents of Connecticut and president ofBerliner-Gelfand & Co. Inc., a Bridgeport, Conn.-based agency,said consumers are shopping more for insurance and are paying moreattention to pricing today.

Paul Monacelli, past president of PIA New Jersey and CEO ofCedar Knolls, N.J.-based ADP/Statewide Insurance Agencies, whichwrites personal auto in New Jersey, Pennsylvania and New York, saidcustomers are also looking to reduce coverages to save money. Theyare taking higher deductibles on physical damage, he said.

Mr. Monacelli said he has responded to the shift in consumerbuying habits by having longer conversations with customers toensure they still have enough insurance to protect theirassets.

Mr. Ross said he reviews customers who ask questions aboutreducing costs as if they were new submissions. He said he speaksto these customers about saving money by bundling coveragestogether and taking advantage of credits for certain levels ofeducation achieved, or certain professions or professionaldesignations.

Insurers are applying these types of credits more liberally thanthey used to, according to D. Scott Liebert, president of PIA NewYork and chairman of CLG Insurance, an agency in Nanuet, N.Y. Forexample, he said he is seeing companies apply credits for renewingcoverage early, taking higher limits and owning a home.

Even with consumers shopping more and companies adjusting tocompete for business, Mr. Luedke said he has not seen a change inthe number of people canceling policies or letting coverage lapse.The lapse and cancellation rate, he said, is about the same it hasbeen for two-to-four years.

Fraud is also a concern for insurers. Mr. Hartwig said there isanecdotal evidence that, because people are struggling financiallytoday, fraud “give up” schemes are on the rise.

Auto theft is also believed to be on the rise, Mr. Hartwig said,particularly in border cities in the United States. He saidproblems associated with the drug trade in Mexico may be a reasonfor this rather than the economy.

Despite the economy looming, professionals in this field agreedthe personal auto market is still healthy and competitive, withprices remaining relatively stable for the foreseeable future.

Mr. Hartwig characterized the market as “extremely competitive,”and noted a healthy personal auto market is important to theindustry's overall health.

“The number of carriers in some previously difficult-to-operatestates is increasing,” such as Massachusetts, Mr. Hartwig said, andresidual markets are “virtually depopulated” in many states.

Private passenger auto, he said, currently accounts for 34percent of all premiums written in United States.

Mr. Monacelli said the market in areas where he writes coverageis “stabilizing.” Up until this year, he said, companies were doingwhatever they could to get market share. “They were appointing alot of agents; sometimes the quality of those agents didn't meetthe profile the companies had in the past,” Mr. Monacelli said.

Companies lived by the mantra that there is a price for everyrisk, Mr. Monacelli continued, but some of those risks were notnecessarily being written at the right prices, casing adeterioration in combined ratios.

The newness of multivariate rating also led to someinappropriate pricing, Mr. Monacelli said. But companies have moreexperience with this type of rating now, he added, so rates shouldstabilize some.

Mr. Berliner said insurance company field representatives havewarned him that there will be slight rate adjustments upward, buthe said this is only being seen in certain regions, not across theboard. While other lines are seeing pressure to increase pricing,this has not impacted personal auto, he said.

Rates have been essentially flat according to what Mr. Ross hasseen, although he said there has been “some rumblings” about ratesbeginning to increase. He said he expects some slight increasesover the next six months but does not see any landscape-change inthe personal auto market.

“Any major changes will happen in baby steps,” he said.

Speaking to State Farm's experience, Mr. Luedke said ratesincreased, but only by just under 1 percent.

Mr. Hartwig said the slight adjustment upward in rates is aresponse to “some underlying increases in costs.” He cited highermedical care costs as an example.

On the regulatory and legislative fronts, Mr. Hartwig said thepossibility of some form of federal regulation stands above allother issues. Questions such as whether federal regulation willonly be seen as a “systemic risk regulator,” or whether the statesor feds will regulate rates, or whether federal regulation will beoptional have yet to be answered, he said.

It is also unknown how such changes will affect big insurersversus small insurers, he noted.

Aside from federal regulation, credit scoring remains a“perennial concern,” Mr. Hartwig said. Some states are againtalking about bans or restrictions.

Mr. Berliner said a bill has been introduced in his state ofConnecticut to ban credit scoring.

Ultimately, Mr. Hartwig said it is incumbent on insurers to makethe case for credit scoring and to show that banning the practicewill result in an inferior rating system.