Arizona Daily Star –Tucson, AZ
Feb. 6, 2011
Alex Dalenberg

Thriftier consumers, fewer miles driven helping keep prices down

An uncertain economy has had at least one positive effect for consumers:

Thriftier driving habits, coupled with intense competition among insurance companies for customers, have kept auto insurance rates steady or on the decline, industry officials said.

On average, insurance rates for 20 of the top 25 insurers in the state decreased or stayed the same in 2010, and none of the top 10 increased rates, data from the Arizona Department of Insurance show.

The numbers reflect the average percent change in rates for each company, based on changes to different coverages affected, such as liability, medical payments and collision coverage.

Under Arizona's "use and file" form of insurance rate regulation, insurers can change rates as they see fit so long as they file their new rates with the state within 30 days. State law prohibits insurers from charging "excessive, inadequate or unfairly discriminatory" rates or rates that could destroy competition.

However, no rate is deemed excessive if there is "a reasonable degree of price competition," and the auto insurance market has been certified as intensely competitive in annual state reviews.

That competition, coupled with the lingering effects of the economic downturn, have kept many insurers from raising their rates, said Lanny Hair, executive vice president of the Independent Insurance Agents and Brokers of Arizona.

"One of the small benefits of a horrible economy is that vehicles are being used less," he said. "If people aren't driving to or from work, they're not putting mileage on their cars. If you have fewer cars on the road, you have fewer people running into each other."

With fewer accidents, insurers are paying out less money in claims, Hair said.

At the same time, cost-conscious consumers have been looking for value, and with more than 300 auto insurers in the state, competition is fierce, said Ron Williams, executive director of the Arizona Insurance Council.

As it stands, only 10 insurers have more than two percent each of the auto insurance market share. The state's biggest auto insurer, State Farm Mutual Automobile Insurance Co., has 14.2 percent of the market share.

"Competition is really driving the fact that auto insurers' rates are competitive," said Williams, whose group is made up of insurers operating in the state.

Arizona's average annual premium per vehicle decreased to $824 in 2009, down from $881 in 2008, the latest data available, Williams said.

Private passenger auto insurance premiums as a whole decreased 3.1 percent in Arizona, down to about $3.2 billion in 2009, he said.

While auto rates have been dropping on average, some consumers might not notice a difference because of different personal circumstances. Factors such as your credit and driving records, where you live and what you drive also affect rates.

The current soft market for insurance, which has led many companies to cut rates and take more risks in hopes of hanging on to customers, has been the subject of heated debate within the insurance industry.

Every insurance expert has a different opinion about when the current cycle will end, Hair said, but nobody is actually sure when rates will start to go back up.

"They're all over the board," he said.

For now, auto insurers will most likely play it safe, Williams said.

"The recession still has to be played out," he said. "For the time being, we're in this competitive marketplace and it's assumed it will continue for some time."