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Driving For Savings
Long suffering New York drivers got bad news again recently. Adding to consumers’ woes over skyrocketing gas prices, a study released in September by the National Association of Insurance Commissioners found that New York drivers still pay the second highest auto insurance premiums in the nation. Auto insurance premiums paid by New York drivers have ranked as the nation’s second highest state for 10 years. New York had historically been ranked fifth or sixth in premiums, until in 1996 when the state jumped to second. In 1996, New York insurers racked up big profits as premiums rose. And since that time, New York drivers have had to suffer with high premiums with little hope for relief. A closer look at auto insurance trends shows that not only are premiums in New York high, but that there have been huge disparities in insurance costs for drivers that have similar driving records. This is a failure of the market and failure of the regulator, in this case the state Insurance Department. For example, according to the Insurance Department, drivers in the Bronx typically pay the highest auto insurance premiums in the state, while drivers in the suburban Rochester region pay essentially the lowest. The exact same insurance coverage within counties can differ greatly. In the Sullivan County region, for example, some 35 year-old male drivers are paying over $1,600 more than others for identical auto insurance coverage! There is, however, some good news. The most recent data released by the National Association of Insurance Commissioners is based on premiums paid in the year 2003. There are some indications that the pressure to keep premiums high is ebbing. According to Insurance.com, the nation has seen an overall decrease in auto premiums by an average of 1.8% in the first half of 2005. New York State has done better than this average in 2005, with an average decrease in premiums of 3%. What’s caused this changed in trends? Well part of the answer is that insurance companies’ revenues from investments have increased. Insurance companies don’t really make their money directly from the premiums consumers pay. They make money from the way they invest consumers’ premiums. With Wall Street doing better and interest rates on the rise, insurance companies are doing better financially. Part of the answer is also that state Attorney General Eliot Spitzer was appointed statewide fraud-fighting czar by the Governor, helping coordinate the efforts of local law enforcement to root out auto insurance billing fraud. In addition, there has been a change in the way New York State regulates auto insurers. In the mid-1990s, the Pataki Administration had successfully pressed to deregulate the way in which insurers charged premiums. Prior to this change, auto insurers were required to request a premium increase from the State Insurance Department before premiums could be raised. The Pataki plan allowed insurers to increase premiums without the Insurance Department’s permission, unless the increase was significant – more than 7 percent. And so premiums went up. A few years ago that law expired due to opposition from the state Assembly. As a result, the insurance companies must get the approval of the Insurance Department to raise premiums at all. One benefit is that insurers’ premium increases are getting more scrutiny and that has contributed to the recent reductions in premiums. But more can, and should, be done. Drivers should be armed with premium information when they shop in the marketplace. As mentioned earlier, there can be a significant range in premiums paid by drivers – for the exact same coverage. New York State should make it easier for consumers to comparison shop. Right now the Insurance Department publishes an annual Consumer Guide that compares premiums for 4 “generic” drivers. Other states – notably California – make far more pricing information available on the Internet. Unlike New York’s static Consumer Guide – and its scenarios for only four generic drivers – California offers an interactive website with pricing information based on zip codes, driver experience and type of vehicle. New York State can learn from the California experience. As a first step, developing a website based on California’s would help drivers to shop smart now. In the longer term, the state should use the extensive information it obtains from insurance companies to offer even more driver-specific pricing information. Armed with such information consumers can use market forces to help lower costs that they individually pay as well as pressuring the industry to be more competitive. The technology to allow instant internet comparison quotes for auto insurance has been around for years; the only thing that’s lacking is the political will to take on the insurance industry on behalf on New York’s beleaguered drivers. As gas prices continue their upward climb, the state should be looking for ways to help reduce the cost of owning a car. Making it easier for drivers to shop smart for auto insurance is one key way that the state can help New Yorkers to save big bucks. That’s all for now. I’ll be keeping an eye on the Capitol and will talk to you again next week.
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