Auto Insurers Enjoying A Smoother Ride

"[In] every other jurisdiction we've reduced [rates]," he said, with smaller decreases of 1 percent or less and larger decreases of as much as 10 percent or more.

The larger decreases have been seen in Connecticut, he said (down 10 percent in April), and Michigan (which had a 10 percent cut filed a month prior to that).

Even in Massachusetts–a historically troublesome state for auto insurers, where State Farm also has no agents and few policyholders–there was a slight decrease in rates, he noted.

An even more significant decrease, he said, is taking place in California, which will see rates fall by 9.9 percent. Given the size of the market there, he added, "that's the biggest one of all."

Raleigh Floyd, a representative for Allstate, said the company has had some rate increases recently, with roughly half the country seeing their premiums rise.

Overall, for the states that had an increase, the average was 4.2 percent, which raised Allstate's national average premium by 1.2 percent. The culprit behind the increases is claims frequency, he noted.

However, another positive sign for auto policyholders is that the line is becoming more of a focus for some companies, such as Chubb. Until recently, the carrier was focused largely on other lines for affluent clients, and their auto coverage was done in conjunction with those policies.

However, now Chubb is making an increased move into the auto market, although still focusing on high-end customers, having developed a new underwriting system that will enable the company to better assess and underwrite customer risk.

Chubb's prior auto underwriting system was "relatively unsophisticated," according to Jim Fiske, vice president of Chubb Personal Insurance and multinational marketing manager. This led the company to have a "narrow sweet spot" for accurate pricing, he added.

With their new system, which has already been rolled out in some states, Chubb can move "within 10 percent of the major players" while still targeting high-end customers, according to Mr. Fiske.

Also, Chubb has made more of a marketing push to help highlight the benefits of its coverage, such as a picture of a Rolls Royce with a bowling trophy for a hood ornament to highlight Chubb's coverage that provides original manufacturer replacement parts.

Despite increased competition and the turn in the insurance cycle, Mr. Fiske said he did not see a soft market becoming out of control in auto.

"Nobody's going to get into a price war," he said. "Hopefully, the industry has learned its lesson from the past" and will price risks responsibly, he said.

Mr. Luedke said State Farm's rate decreases "are a function of claims experience," where the company has seen a continuing decline.

However, in a sign the market might be starting to turn, he noted that "claims frequency is continuing to go down, but it's not going down as fast as it was a year ago."

IIABA's Ms. Flanagan also sees the current market as part of the industry's overall pattern.

"This is the normal cycle," she said, noting that in 2002, there was a "real upswing in auto pricing," which was the other end of the cycle.

However, she said the current market is "probably near the bottom" of this phase in the cycle, and consumers "probably won't see rates declining" too significantly any time soon–although she did note that given the typical timing of a cycle, there may be "small decreases" or level prices for the next three-to-five years.

One new trend she said she has seen has been an increased willingness on the part of auto insurers to offer behavior incentives–particularly on the hot issue of environmentalism. "We've seen pretty substantial rate reductions for 'being green'" and buying a hybrid car, she noted.

Additionally, Ms. Flanagan said auto insurance markets are feeling the effects of what's happening in the homeowners side of the personal lines business.

"Companies are pulling out of markets, changing their focus," she said. "They don't want the PR hit from a large auto increase. No one wants to be seen as gouging and mistreating their clients."

Additionally, she noted that auto insurers can afford a little more leeway than their counterparts in the homeowners division. "Auto losses have been nothing compared to property, or the potential for property losses," she said.

Overall, according to Mr. Luedke, auto insurance remains a "very competitive market," which is how State Farm feels it should be. "We believe that those markets in which companies are allowed to best price their product based on the risk are those that are in the best long-term interest of the customer," he said.

Already often mentioned by insurers, Illinois is just such a state, he said, as is South Carolina.

While New Jersey has traditionally been viewed as a tough market for insurers from a regulatory perspective, Mr. Luedke noted "there has been some progress there" that will help insurers and customers alike.

Another state that has made strides toward a freer and more improved market is Louisiana. Perhaps the most important step there, Mr. Luedke noted, was the abolition of the state Insurance Rating Commission, which he described as "a body that allowed political appointees with no actuarial training to rule on rate filings."

Mr. Fiske said California is "always very tough," but New Jersey's progress has created a "tremendous opportunity to attract more customers." Even Massachusetts has caught Chubb's eye. "I wouldn't say we're about to rush into Massachusetts, but we're very aware of the changes," he said, adding that the company could consider a move into the commonwealth in the future.

Allstate has had its share of problems in what Mr. Floyd called the "usual suspects" of Texas, California and–to a degree–New York, along with some states in coastal areas.

Additionally, just as the backlash from developments in one homeowners market hasn't necessarily remained in just that troubled state, Mr. Floyd said the problems homeowners insurers face with regulators can affect their dealings when it comes to auto insurance as well.

Indeed, the states where auto lines are more challenging from a regulatory aspect, he said, "tend to be where we have a more challenging homeowners market."