New York State drivers dodged a bullet in recent weeks, as state regulators forced auto insurers to reduce or withdraw rate hike requests that would have cost consumers another $515 million in premiums.
State officials announced this week that auto insurance rates for New Yorkers will rise by an average of less than 1 percent next year.
That's down from the average requested increase of 8 percent that insurers had originally been seeking during the summer, when regulators demanded that the companies justify their increases in light of evidence that Americans were driving less, and therefore posing less risk.
"Because of higher gas prices, New Yorkers are driving less and having fewer accidents as a result," said New York Gov. David A. Paterson in a press release. "It's simply counterintuitive to increase rates by 8 percent when people are driving less."
Gas prices spiked to record levels of more than $4 a gallon this year. Prices have come down more recently, but remain above $3 a gallon -- far more than what Americans are used to paying.
As a result, drivers are changing their habits, using public transportation, carpooling, or working from home to save money. According to the U.S. Department of Transportation, Americans have driven 62.6 billion fewer miles from November 2007 through July than in the same period the year before. That beats the previous record decline of 49.3 billion miles set in the 1970s.
In June and July alone, New Yorkers drove 907 million fewer miles than in the same two months in 2007.
"There is a clear trend toward driving less," said New York Insurance Superintendent Eric Dinallo. "Since trends are an important factor in setting auto insurance rates, we would have been remiss had we gone ahead with business as usual."
New Yorkers already pay about $10 billion annually in premiums, the third-highest level in the nation. But 43 companies, covering 75 percent of the state's drivers, had rate hike applications pending before state regulators as of Aug. 6.
That's when Dinallo ordered insurers to consider the impact of high gas prices and reduced driving when they set rates. And the department also required insurers to demonstrate in their filing how they had taken that into account.
Simultaneously, but in the wake of discussions with regulators, GEICO Corp., the state's largest private passenger auto insurer, immediately withdrew requests for rate increases for two of its subsidiaries and sharply reduced the request on a third, giving the state added leverage in its demand.
"It is common sense: when gasoline prices are high, people drive less. When people drive less, they have fewer accidents and fewer claims. And the insurance rates should reflect that," Dinallo said.
Over the following weeks, 10 insurers voluntarily withdrew their filings while four others reduced their rate requests, said Michael Moriarty, deputy superintendent for property and capital markets. There are also 20 "open filings" still pending final action, mostly from smaller carriers. But regulators are now rejecting applications if the insurers didn't provide enough evidence to justify their filing or didn't respond to the state at all.
"We're not inclined to grant any further approvals based on our initial review," Moriarty said. "The bar is very high in terms of what we would approve."
Insurers were not happy about having their arms twisted, though, said Ellen Melchionni, president of the New York Insurance Association. The state trade group had written to Dinallo in August to oppose the idea that lower gas prices correlate to lower risk.
"We thought it was kind of an overly broad decision to try to reduce auto rates on that. We're not allowed to speculate, so we found it interesting that the department was speculating that rates should automatically come down," Melchionni said. "Gas prices are down this week, so does that mean we can raise the rates?"
She also said auto insurance losses are now increasing, imposing more costs on insurers, in part because the cost of repairs has risen over 30 percent since 2000 even though the frequency of claims is down 11.6 percent in the same period.
Moriarty acknowledged those trends, noting that loss trends were higher in 2007 and early 2008 after four years of strong profitability. But he said insurers still recognized the uncertainty.
"There was some pushback but I wouldn't call it great," he said. "It's generally recognized that the cost of gas has gone down-- but nevertheless it's still at a level where it may have a lasting impact on drivers' habits."