Auto Insurance

Auto Insurers Assessing Reduced Driving on Their Rate Requests

Higher gas prices lead to less driving, and as New Yorkers drive less, the number of accidents should go down.

That's the assertion of New York Insurance Superintendent Eric Dinallo, who issued a bulletin to auto insurers on Aug. 6 instructing companies with pending requests for rate increases to examine the impact reduced driving may be having on their rates.

Nearly 50 auto insurers that have filings for rate increases before the insurance department are now conducting the required analysis. Their requests will not be considered if the additional information isn't included.

On the same day the bulletin was issued, Washington, D.C.-based Government Employees Insurance Co. (GEICO) withdrew a rate-increase request previously filed for two of its companies, GEICO and GEICO General, says Michael Moriarty, deputy superintendent for property and capital markets.

The action followed a previous discussion with the insurance department on how higher gas prices are reducing the number of miles New Yorkers drive, says Moriarty.

GEICO had filed its rate increase request in the spring. During the review process, the insurance department mentioned the possible domino effect of fewer accidents and insurance claims if higher gas prices mean people aren't driving as much.

The insurance department cites information from the U.S. Department of Transportation indicating that in May, the number. of miles Americans drove declined for the seventh straight month. New Yorkers drove 500 million fewer vehicle-miles (a 4 percent reduction) in May 2008 than in May 2007.

Vehicle-miles are the standard measurement of traffic volume, with one vehicle-mile representing one vehicle driven one mile.

GEICO was asked if the company had taken the possibility into account in its rate filing.

"They came back with some analysis, and basically indicated that due to the fact that gas prices are impacting the driving habits of New Yorkers, and people in the United States in general, that they would withdraw the filing in kind of a wait and see for the impact on their book of business," says Moriarty.

A second rate increase request for GEICO Indemnity, a company that writes policies for higher risk drivers, has also been reduced, says Moriarty.

In an e-mail, Rachel Veness of GEICO corporate communications, said the state insurance department has accurately described what transpired, "but because of the highly competitive nature of our business and because our competitors watch our progress with great interest, it's our long standing policy not to release any information about GEICO operations."

As of Aug. 14, eight days after the bulletin was issued, GEICO is the only auto insurer to withdraw a rate request. The company writes approximately $2 billion worth of auto insurance annually in New York, making it the state's largest auto insurance underwriter, according to Moriarty.

Andrew Mais, spokesman for the insurance department, says the average rate increase request is 7 percent among the 48 insurers that have filed and are now assessing the impact of reduced driving on their rates.

In 2009, all insurers in New York will have the ability to raise or lower their rates by up to 5 percent without prior approval from the insurance department.

The provision, called a flex-rating program, is part of a new state law that takes effect in January, says Timothy Dodge, director of research and external communications at the DeWitt office of the Independent Insurance Agents & Brokers of New York, Inc.

"What's good about that is it gives the insurance companies some pricing flexibility so that they can react more quickly to changes in the market when they see them," says Dodge, noting that right or wrong, the insurance department has a reputation for acting slowly on rate requests.

The provision indicates companies can raise their rates just twice in a given 12-month period, and the rate increases combined can't exceed 5 percent, says Dodge.

He says the law is somewhat biased toward rate decreases, noting companies can reduce their rates as many times as they want, as long as the reductions combined in a given year don't exceed 5 percent.

"It's going to allow the market to respond more quickly to changing conditions and that can only benefit consumers," says Dodge.

Any proposed rate increase over 5 percent would still need approval from the insurance department.

When asked if he felt the new flex-rating provision played any role in GEICO withdrawing its rate increase request, Moriarty said he honestly didn't know.

Without the need for department approval on 5 percent fluctuations, the new state law could mean fewer rate-increase requests for the insurance department to consider in the future, says Moriarty, acknowledging that insurance companies operate in a competitive marketplace.