Automobile Insurance You Can Count On…One Hand

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If you watch TV, you’ve become accustomed to the plethora of ads touting auto insurance products. The Australian accented GEICO lizard and the uber-chipper Progressive saleslady Flo have become friendly fixtures in our living rooms. But do they translate to cheaper rates for consumers?  Insurers say they do.

According to the Insurance Information Institute (I.I.I.), drivers can count on insurance rates becoming more competitive as the number of insurers – and advertisers – remains strong. The group says the large number of insurers in the marketplace is a boon for drivers, as it increases availability and affordability for consumers.

The statement by I.I.I. is in direct contest to a Consumer Federation of America (CFA) report that says insurers are structuring rates to increase for lower income drivers. The CFA report countered a study by the National Association of Insurance Commissioners that asserted that rates had steadily declined for U.S. drivers every year from 2005 to 2009.

Dr. Robert Hartwig, I.I.I.’s president said, “Auto insurance provides important, cost-effective financial protection to millions of Americans, and most drivers have dozens of auto insurers constantly competing for their business.”

The NAIC study showed that the average consumer paid $785 in insurance for a passenger vehicle in 2009, an amount that’s $4 lower than what they paid the previous year in 2008. The figure includes liability, collision and comprehensive coverage. The cost of coverage in 2005 was $832 per vehicle and declined steadily each year until the figure of $785 in 2009.

I.I.I. further contends that another indicator of a fair insurance marketplace is seen in the decrease in the percentage of income the average family spends on auto insurance annually.

According to Risk Information’s Auto Insurance Report, the percentage of insurance cost to income decreased from 1.27% to 1.05% in 2009.  Part of this decrease is attributed to drivers who participate in their state’s insurance pool, which gives low income consumers reduced insurance costs.  As overall insurance rates decline, fewer drivers need to participate in state insurance pools.  The bottom line is that the more people purchase insurance in the open marketplace, the lower rates should become.

“As anyone who watches television commercials knows, auto insurance coverage is widely available in every U.S. state,” says Robert Hartwig, the president of the Insurance Information Institute. “Drivers should shop around if they feel as though their current auto insurer is not meeting their needs, or charging too high a price.”

Hartwig added that insurance regulators closely monitor and control the rates that insurers are allowed to charge for their policies, a factor that keeps prices down.  Regulators also must approve the criteria used when calculating rates, such as age, gender and other demographic information. Insurance premiums are determined by consumer’s driving records, as well as by the car they drive and the amount and type of coverage.

Criteria that auto insurance companies use to calculate rates, such as consumer credit scores and zip codes, has been contested by consumer groups as unfairly penalizing low income drivers. Insurers insist that this information is used only as it relates to risk and thus is a fair method of determining rates.

No doubt the difference of opinion between consumer groups and insurance representatives will continue, but no one can argue that a continuing decline in rates is good for U.S. drivers.