Regulators bear down on auto insurers
State insurance regulators on Wednesday called on auto insurers in New York to justify any rate hike requests against evidence that higher gas prices are causing consumers to drive less, prompting the state’s biggest insurer to withdraw two applications for increases.
The New York State Insurance Department issued a “circular” letter to all auto insurers, ordering those seeking to raise rates or change classifications to analyze the effects of near-record gas prices on loss projections.
In the letter from Deputy Superintendent Michael Moriarty, the department argued that consumers “have responded, and will continue to respond,” to the increased prices by cutting back on driving.
They’re avoiding unnecessary trips and combining errands to save gas and money. In turn, the department argues, that should lead to less risk and lower claims losses.
“When people drive less, there are going to be less accidents, and when there are less accidents, there will be fewer claims,” said Insurance Superintendent Eric R. Dinallo in an interview. “If there’s less driving, rates should reflect that.”
The demand had an immediate impact. As a result of talks it was already having with the state, GEICO Corp., the state’s No. 1 auto insurer, withdrew requests for rate hikes for two of its units, GEICO and GEICO General. That covers 75 percent of its policies in the state.
It also agreed to “substantially reduce” its rate request for a third subsidiary, GEICO Indemnity, that handles higher-risk customers and covers the rest of its policies in the state. The company insures 2 million vehicles in the state, and employs more than 1,400 in Amherst.
According to the U. S. Department of Transportation, Americans drove 9.6 billion fewer miles in May 2008 than a year earlier, down 3.7 percent. That’s the largest drop ever recorded for May, despite Memorial Day and the unofficial start of summer. It’s the third-largest monthly drop in 66 years.
The Insurance Department said the average external cost of an accident is 2 cents to 7 cents per mile traveled by cars, based on economists’ estimates. With reduced driving, that translates to between $2.3 billion and $8 billion in claims savings.
A written analysis of any impact, complete with data, must be submitted with a rate application before regulators will approve the filing, the letter said. That applies both to pending applications and future requests. Currently, about 48 rate filings — “overwhelmingly” requests for increases — are pending before regulators, seeking an average increase of 7 percent, Dinallo said.
“We’re requesting them to go back and look at the data,” he said.
“We expect a withdrawal or modification of those rate increases based on the logic of what we see and the early indications that experts like GEICO agree.”
Regulators would not say how much of an increase GEICO originally requested, or what its new plans entail, citing confidentiality of unapproved requests to prevent collusion among carriers. However, “it was not an insignificant increase,” Dinallo said. “It wasn’t such a smidgeon amount that no one would have cared.”
GEICO spokeswoman Rachel Veness confirmed that accidents were less frequent in the second quarter than in past quarters, and “the surge in gas prices during the second quarter could be a cause.”
The efforts by insurers to raise rates come after several years of decreases in New York, following a big drop in fraud losses because of more prosecutions and changes to state laws. Claims losses have gone up again because newer cars with computers and other technology are more expensive to repair, and medical costs have soared.
However, not all insurers planned rate hikes. Nationwide Mutual Insurance Co. has applied for a 4 percent average decrease statewide, while Buffalobased Merchants Mutual Insurance Co. has a pending request for a double-digit rate cut.
“We would agree with the insurance department’s findings,” said Paul Saccomando, director of personal lines underwriting. “We’ve had that show up in our loss results.”
Other insurers like Allstate Corp. and Progressive Corp. declined to discuss rates, but said they would consider regulators’ request.
