Wednesday, 30 June 2004 17:00

Fewer claims lead to reduction in insurance rates

Due to a reduction in severity of claims, the Automobile Club of Southern California (Auto Club) has said it is reducing its rates. Insurer USAA made a similar announcement that applies to all 50 states. 

Auto Club is the first major insurance company to decrease rates in California after several years of increases.

California Insurance Commissioner John Garamendi has approved the Auto Club's filing to reduce its insurance affiliate's policy premiums by five percent.

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The filing, officially made by the Interinsurance Exchange of the Auto Club, was based on a reduction in the number of bodily injury, property damage and collision claims. The rate reduction is the first decrease by a major insurer in three years, and should save Auto Club policyholders an average of $90 per policy.

The rate reduction, effective August 1, 2004, would affect approximately 90 percent of Auto Club's policyholders.

"That one of the largest auto insurers in California and the nation can operate profitably enough to reduce its members' premiums is good news for California insurance consumers," said Garamendi.

Savings will vary

The amount of the adjustment to individual policies will vary, depending upon the type of coverage, applicable discounts and type of car. About 90 percent of policyholders will see a rate reduction. This rate change will become effective on August 1, 2004.

With the newest rate reduction, the Auto Club's affiliated insurance company has reduced rates by nearly 24 percent since 1993. This rate reduction is on top of the annual premium savings dividend the Exchange has returned to its policyholders each year since 1990.

In 2003, policyholders received a premium savings dividend that averaged 9.5 percent, or approximately $152 per policy.

"In addition to reduced claims costs, we've continued to work hard at reducing operating costs and improving efficiency," McKernan added.

Auto Club has more than nine percent of the California written premium market share and is the largest affiliate of the national organization, AAA.

Will others follow suit?

"With the claims experience of the third largest auto insurer in California showing that rates can come down, it stands to reason that other insurers in the state could be seeing similar trends in their claims data," added Commissioner Garamendi. "I hope my department will see more filings for rate decreases in the coming months."

USAA reduces rates 7 percent nationally

In 2004, USAA said it has already reduced, or has plans to reduce, automobile insurance rates by an average of 7 percent in almost all states. As a result, USAA auto policyholders will save more than $900 million in annual premiums over the next five years. USAA has approximately 3.6 million auto policyholders in the United States, and is the country's 7th largest auto insurer.

"USAA's mission is to provide the best products at the best possible price for our members," said Henry Viccellio Jr., president of USAA Property and Casualty Insurance Group. "By improving operational efficiencies and establishing a range of insurance rates based on the individual risk, we're able to pass on savings to members."

USAA's move to lower rates bucks an industry trend. According to an Insurance Information Institute forecast issued in March 2004, auto insurance rates are expected to increase an average of 3.5 percent in 2004. The Institute expects most consumers to see an increase of $29 per vehicle, with a total average cost for auto insurance nationwide estimated at $871 for 2004. The Institute's estimates are based on U.S. Bureau of Labor CPI data, National Association of Insurance Commissioners data, company filings and trend projections.

USAA provides auto insurance in all 50 states. It has already reduced auto insurance rates, or has plans in place to lower rates this year, in 44 states.

USAA also is eliminating its extended billing fee for members who opt to pay auto insurance premiums on a monthly basis in an effort to pass additional savings to members. This fee elimination, which will occur automatically without any required action from members, will save policyholders nearly $42 million annually.

USAA rate reductions will vary by location and coverage and may not be available in all locations. Average rate reductions assume no change in insured individuals, vehicles, coverages or benefits. Rates will not change for existing insured individuals until their policies renew.


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