Despite the ravages of the recession, personal lines auto remains one of the most competitive markets for consumers–not just in the insurance field but for all industries across America, according to experts analyzing the factors driving price and cost trends today.

Premium volume is down a bit for insurers as the economy continues to struggle, but consumers still have their pick of a variety of carriers, assorted discounts, a growing number of coverage options and several distribution channels when purchasing auto coverage.

While legislative, regulatory and legal hurdles remain–including ongoing efforts in some states to limit or eliminate the use of credit as a rating factor–companies are continuing to innovate, with some rolling out new coverage options such as “Pay As You Drive” products, which determine rates based on driving feedback from a telemetry device.

When compared to just about any competitive enterprise, there is a “remarkable amount of competition in the auto insurance market,” according to Wes Bissett, senior vice president for government affairs of the Independent Insurance Agents and Brokers of America.

Steve Weisbart, chief economist for the Insurance Information Institute, agreed, noting that many companies are competing in the marketplace–and they are not winning consumers on price alone. He explained that surveys show policyholders value service and the financial stability of insurers as well.

A State Farm representative, Dick Luedke, said the strong competition is beneficial, as it “keeps all of us at the top of our game.”

“In looking for states that are particularly competitive from our perspective,” he added, “we would probably look first at the states in which we are not the market share leader. There are only 11 of them: Connecticut, [the District of Columbia], Hawaii, New Jersey, Massachusetts, New York, North Carolina, Rhode Island, Utah, Vermont and Wisconsin.”

He noted State Farm has no agents in Massachusetts or Rhode Island.

As for pricing, Mr. Weisbart said measurements by the Bureau of Labor Statistics shows a general rise in rates over the last 12 months by about 5 percent. He attributed the rise to cost increases in areas that auto insurance would have to pay for.

The 5 percent figure, he noted, represents a broad average across the United States. Prices and increases will differ, he added, from state to state and territory to territory.

Mr. Bissett said states with the highest rates are not surprising–pointing to the District of Columbia, New York and New Jersey as examples. These areas, he said, contain concentrated urban centers where more accidents tend to happen.

He also said that even when looking at a period of multiple years, pricing for auto insurance remains “remarkably steady,” and he attributed that mainly to the amount of competition in the marketplace.

For State Farm, Mr. Luedke said the overall rate level increased 2 percent in 2009, after a 1 percent increase in 2008. The company's rate level decreased in each of the five years prior to 2008, he pointed out.

According to Mr. Weisbart, even though rates have increased some, premium volume is down. Auto purchasing habits in the struggling economy could be a contributing factor, he said, noting that people are holding onto older cars longer today, and older cars cost less to insure.

Additionally, he said, collision coverage is dropped entirely with older cars at times.

Most auto insurers would probably say their business is growing in terms of policies written, but not so much in terms of financial growth, according to Neil Alldredge, senior vice president of state and policy affairs for the National Association of Mutual Insurance Companies.

Overall, however, he said 2009 was a solid year for personal lines insurers in general–not, he noted, because of a big change in pricing, but rather due to factors outside the auto insurance space, such as the lack of catastrophes.

Jim Pittz, business issues director for the Professional Insurance Agents of New York, New Jersey, Connecticut and New Hampshire, said pricing is still low, but he said insurers are cutting coverages and scrutinizing claims more closely to compensate. He also suggested that carriers are being more careful with their costs–with perhaps more claims being denied initially.

The auto insurance market also saw the continued rollout of “pay as you drive” products in 2009, with Mr. Weisbart mentioning such products as an area of innovation that has not yet taken off, but continues to generate interest within the industry and among regulators.

Pay as you drive (PAYD) products rate insureds based on miles driven, usually as measured by a telemetry device. The devices can measure other factors as well, such as how an insured accelerates and brakes, how fast an insured drives, where an insured drives, and at what time of day the vehicle is driven.

Some jurisdictions do not allow insurers to collect data on all of these factors because of privacy concerns.

But, as Mr. Weisbart said, “everyone thinks we'd be better off if we had more accurate measures of driving behavior rather than rough approximations without devices.”

For example, he said a physician or an attorney who is 45 years old and married would likely be in a high rating category. A device monitoring how this individual drives would reveal whether he/she truly should be in that category.

Such devices, he added, could also provide an incentive for insureds to drive more carefully.

Regulators have been interested in exactly that, according to Richard Hutchinson, general manager of usage-based insurance for Progressive–which offers a PAYD product called “MyRate.” He also said some regulators are interested in these products from an environmental standpoint, as consumers would be rewarded for driving less.

Regulators also perceive PAYD products as an opportunity for safer drivers to validate themselves and earn discounts, Mr. Hutchinson said.

In 2009, he said, Progressive increased the availability of MyRate to 19 states from nine. California was one state that granted approval after engaging in discussions with Progressive and others in the industry about privacy concerns.

Mr. Hutchinson said California was comfortable with measuring mileage, but not with using telemetry devices to determine location. He said there were concerns about the ability to create a history of people's physical whereabouts–information that could then be used in an inappropriate manner.

Progressive, Mr. Hutchinson said, does not monitor location as part of its MyRate product.

For consumers, Mr. Hutchinson said research shows that about a third to one half of consumers indicated some level of interest in areas where MyRate is available. As for actual take-up, he said when the product is offered about one in four buy it.

Mr. Hutchinson said his personal opinion is that MyRate will coexist in the marketplace with other Progressive products.

NAMIC's Mr. Alldredge agreed, stating that he believes PAYD will become a complement to existing products, rather than a wholesale replacement. He said the insurance industry is not known for giving up one product entirely to offer another.

“Usually what will happen is both will be offered,” he said.

State Farm, too, has waded into the PAYD arena, with Mr. Luedke stating that the company has implemented “a pay as you drive-type of discount program in Ohio. We are measuring mileage driven by partnering with OnStar.”

For insurers using the PAYD concept, Mr. Luedke said, “the advantage is that we can be more precise in measuring mileage driven, and thereby better match the premium we charge to the risk we are assuming.”

Looking forward for the auto insurance market, both Mr. Bissett and Mr. Alldredge pointed to continued attacks on credit-based insurance scoring as possible causes for concern, with Mr. Bissett stating that restrictions on the practice could affect competitiveness in the auto market.

Battles have already been fought over the issue this year, with Mr. Alldredge pointing to the State of Washington as an example. There, bills failed in both the state House and Senate.

At the time, Kenton Brine, assistant vice president of the Northwest region for the Property Casualty Insurers Association of America, said he considered the issue dead in that part of the country.

“I don't know how much more repudiation is necessary in the Northwest,” he said, noting that the bills in Washington failed to pass with Democratic supermajorities in the House and Senate, a Democratic governor, and a Democratic insurance commissioner.

He also pointed to a 2006 ballot measure in Oregon in which a credit scoring ban was voted down by voters.

Barring any major change in the auto insurance landscape, observers said they expect the market to continue to be healthy and competitive, with an improving economy only making the outlook brighter.

Special Reports /

Auto Insurers Hit Recession Speed Bump, But Market Remains On Competitive Track

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