Pay-As-You-Go Coverage: A Win/Win

Support is growing for pay-as-you-go auto insurance, essentially policies with premium levels that are tied to the actual number of miles (or hours) the driver is behind the wheel. It doesn’t take a rocket scientist to figure out the rationale. The less you drive, the less risk you will be in a car accident.

Here’s the interesting thing. Advocates are pointing out that going to this model of insurance would actually encourage people to drive less, which would have a corollary environmental benefit.

At the same time the insurance industry could potentially cut as much as $60 billion a year in auto accident claims paid out, we might also see a 2 percent drop in carbon dioxide emissions and a 4 percent drop in oil consumption — while the average American family would be cutting their annual auto insurance bill by about $270.

Heretofore, the pay-as-you-go model was difficult to verify, requiring certified odometer readings and periodic check-ins. Onboard computer systems on automobiles are taking care of that issue rather nicely.

For instance, GMAC offers a low-mileage discount to its OnStar customers. The program generates a monthly data report anyway, so miles driven is simply added as a monitoring factor. The result? Some OnStar customers are saving as much as 54 percent off their coverage costs.

Only 34 states currently allow some version of pay-as-you-go coverage, but we predict this will become an increasingly popular insurance model over the next year to eighteen months. It’s a win/win for all parties concerned.

Odometer Readings may not be All That

A new study from Quality Planning a company that validates policyholder data for car insurance companies, has shed new light on the use of odometer readings to predict annual mileage on private passenger cars.

In a quantitative study published on their website last week, Quality Planning found that when previous odometer readings are the sole method of estimating future annual mileage, more than half the vehicles rated will have an error of more than 25 percent. The failure is due to the erroneous assumption that vehicle usage stays the same from year to year.

Because annual mileage has a direct correlation to auto loss costs, insurance underwriters are driven (no pun intended) to make accurate estimates. Some insurers, and some regulators as well, believe that odometer readings are a good predictor of future annual mileage, and they collect readings either directly from the consumer, or from sources like service records and smog/inspection reports to make their estimates. Unfortunately, these sources are not actually accurate when it comes to predicting the future.

Dr. Raj Bhat, president of Quality Planning, explains, “Just because the methodology is based on measurable data, does not necessarily mean it is an accurate and acceptable method on which to base premium. Numerous factors directly affect driving behavior and therefore the total number of miles a specific vehicle is driven each year. Foremost among these are lifestyle changes and changes in the mix of household vehicles. It is essential to include these factors when predicting annual mileage, because a change in either can affect total miles driven.”

With annual mileage an important factor in calculating auto insurance premiums, Quality Planning’s study has great significance. It recommends that odometer readings be used only as a baseline, and says they should be supplemented with further data that addresses such factors as lifestyle changes, the number of vehicles in the household, and other similar conditions that could impact the actual number of miles each policyholder drives in a year.

The complete study can be found on Quality Planning’s website.

RateWatch: Farmers Cuts Rates, Issues Rebates in California

Great news for Californians looking to save money on auto insurance: state Insurance Commissioner Steve Poizner announced today that Farmers Insurance customers will be eligible for an average rate reduction of 14.5 percent as well as a one-time-only insurance premium rebate of 10 percent. This reduction applies to Farmers Insurance customers who are insured either through Farmers Insurance Exchange or Mid-Century Insurance Co., though customers insured by the latter subsidiary are already receiving the new lower rates.

Existing customers of Farmers Insurance Exchange who renew their policies between July 15, 2010 and January 15, 2011 will receive the one-time 10 percent rebate, which is estimated at about $50 per insured car. In addition, they will also receive an ongoing rate cut of roughly 15 percent.

Overall, Farmers Insurance insures about 2 million cars in California. Its Farmers Insurance Exchange subsidiary insures approximately 640,000 vehicles statewide.

Since Commissioner Poizner took office, he has worked to ensure an efficient and competitive auto insurance market and auto insurance rates have decreased by more than $1.3 billion

California consumers who want to know more can read a review of Farmers Insurance before asking about rate quotes.

21st Century Reduces Auto Insurance Rates in New Jersey

Residents of the eastern seaboard will be pleased to hear that 21st Century Centennial Insurance company is offering lower car insurance rates in New Jersey.

The insurer announced today that it has lowered its overall rates in the Garden State by twenty percent, retroactively effective as of May 10, 2010.

This rate reduction makes 21st Century one of a small set of car insurers to reduce their rates in the past year, while many larger automobile insurance companies writing policies in New Jersey increased rates. On average, new customers will save $568/year thanks to this reduction, though actual premiums are based on a variety of factors.

In a statemet to the press, Tony DeSantis, CEO of 21st Century Insurance said, “This rate decrease allows new 21st Century customers to get more value for their auto insurance. Consumers expect more today, and now customers in New Jersey will benefit from receiving the same great coverage for less.”

Also today, 21st Century announced a 9.5% overall reduction of rates for new customers in Illinois.

State Farm Raises Rates in Texas

The Dallas Morning News reported yesterday that State Farm is giving Texas policy holders an average 2 percent rate increase next month, citing higher medical costs as the main factor in the decision.

The Texas Department of Insurance has been notified by the largest subsidiary of the insurer, State Farm Mutual, that the rate increase will go into effect on renewals and new customers on August 16th. State Farm County Mutual, another State Farm subsidiary which mainly insures high-risk drivers, will also increase its rates next month, by an average of 6.8%. These increases affect 3 million, and 230,000 Texas drivers, respectively.

Deesia Beck, a public insurance counsel whose office represents insurance consumers in the Lone Star state, filed objections to the rate increases on Tuesday, stating that State Farm doesn’t have good enough justification for such a hike. She called on Mike Geeslin, state insurance commissioner, to reject the increase.

In a letter to the insurance department, Beck said, “The filing would, if implemented, produce rates that are excessive, unreasonable and unfairly discriminatory.”

An insurance department spokesman said the rate filing is under review.

Kevin Davis, a spokesman for State Farm, said the increase was filed “…primarily to address rising costs associated with bodily injury liability claims, such as medical costs.” She also said that even with this latest rate hike, State Farm Mutual’s rates have dropped by 6.6 percent overall, since 2004.

Ratewatch: Auto Insurance Increases in Michigan

InsWeb reported yesterday that the state of Michigan has seen a 5.4% increase in its median six-month auto insurance rate, over the last six months, making the average premium $688.

Also reported were some Michigan rate trends based on demographic groups, for example:

• Michigan women pay a median auto insurance rate that is at least 3% lower than the rate paid by men.
• Mature drivers in Michigan (those aged 50-59) pay less than half the median auto insurance rate charged to those drivers aged 19 and under.

According to the “affordability factor”, Michigan is the 24th most affordable state in which to insure a vehicle. Specifically, this means that a household in Michigan which earns the median state $44,727 a year, and pays the median rate of $688 (for six months) for auto insurance, is spending about 3.1% of it’s gross income for auto insurance.

Medians aside, Michigan is the most affordable state in the country, with an “affordability factor” of 2%, while Louisiana is the most expensive, with a factor of 7.1%.

Ratewatch: Lower Rates for AAA Customers in Hawaii

AAA’s Hawaiian division announced today that J.P. Schmidt, the state insurance commissioner, has approved its plan to decrease auto insurance rates by an average of 10%, or about $120/year.

In an announcement to the press, Liane Sumida, AAA Hawaii Insurance Business Manager said, “We appreciate the approval and work by Insurance Commissioner Jeffrey P. Schmidt and his staff. This reduction is helping to fulfill our ongoing commitment to offer our members the best insurance at the best possible price.”

Commissioner Schmidt also weighed in, stating, “The Insurance Division carefully reviewed the rate filing and we are happy to approve this discount for our drivers. AAA Hawaii has been a good competitor in the auto insurance market, which benefits all of Hawaii’s consumers.”

In addition to reduced rates, AAA Hawaii members, who are served by AAA Hawaii’s affiliated insurance company, the Interinsurance Exchange of the Automobile Club, may also be eligible for multiple vehicle, safe driver, and multiple policy discounts, among others, explained Sumida.

Need Car Insurance? Now May Be the Best Time to Buy

Insurance industry officials want consumers to head to their computers and telephones and start comparison shopping for new auto insurance policies. Why? Because according to a report out of Cleveland, OH, the average cost for insurance rose only $7 last month, to $1,812.

Sam Beldon, vice president of a leading online insurance site, said in a press release, “Drivers have every reason in the world to shop and compare car insurance rates right now. We’re still near record low premiums, the average driver shopping for comparison quotes at insurance.com saved $526 last month, and there’s no telling whether rates will continue to rise – and if they do, how dramatically. If drivers are thinking about switching companies, it’s time to stop thinking. Shop, compare quotes and save some serious cash.”

Last month, the lowest average annual auto insurance rate increased nationally from $1,805 to $1,812. By comparison, the average premium for the same month last year was $1,872, and in 2008 it was $1,893.

In order to help consumers maximize their car insurance shopping experience, we recommend the following:

1. Be Accurate: If you want the numbers in your insurance quotes to be accurate, give complete, correct information. Quote engines are not telepathic; their numbers are based on your input. This includes your driving record for up to three years, the make, model, and year of your car, and details of your current coverage.
2. Be Digital: Doing your insurance shopping online will save you a lot of time. Most insurance quote websites require only one form to get you multiple quotes (generally up to four) from several excellent companies. This is much faster than going to each company website separately, though even that is still faster than calling around, or setting face-to-face appointments, just for the comparison phase of your shopping process.
3. Be Inquisitive: There’s an old adage, “If you don’t ask, you don’t get,” and it’s particularly apt when it comes to comparing car insurance. If you have coverage now, be sure you know what discounts you already have, so you can compare what other companies are offering, and ask what your existing insurer may be able to add (or subtract) to give you a better rate. If you’re new to the auto insurance world, ask what discounts may be available to you because of your credit scores, zip codes, marital status, or job title, among other things.

Most and Least Expensive States to Insure a Car

Well, the numbers are in for 2010 and it looks like the most expensive place to insure a car is Louisiana and the least expensive is Maine. According to a story by Stephen Markley in the Miami Herald, here’s how it stacks up in descending order by average premium:

1. Louisiana $2,510.87
2. Michigan $2,098.29
3. Oklahoma $1,869.39
4. Montana $1,857.96
5. California $1,774.41
6. South Dakota $1,772.83
7. Washington, D.C. $1,753.19
8. Georgia $1,751.42
9. Illinois $1,679.15
10. Connecticut $1,678.90
11. Arkansas $1,648.80
12. New Mexico $1,603.65
13. Rhode Island $1,595.97
14. West Virginia $1,589.69
15. Alaska $1,572.21
16. Wyoming $1,552.98
17. Maryland $1,550.13
18. Kansas $1,524.51
19. Kentucky $1,515.30
20. Colorado $1,480.97
21. Mississippi $1,474.94
22. New Jersey $1,473.73
23. New York $1,463.21
24. Texas $1,462.65
25. Florida $1,453.20
26. Pennsylvania $1,420.78
27. Delaware $1,405.80
28. Missouri $1,390.59
29. Minnesota $1,381.09
30. Alabama $1,380.38
31. North Dakota $1,365.22
32. Hawaii $1,306.97
33. Indiana $1,302.51
34. Nevada $1,282.50
35. Washington $1,279.84
36. Utah $1,234.30
37. Virginia $1,233.36
38. Nebraska $1,210.74
39. Oregon $1,194.69
40. Idaho $1,183.47
41. South Carolina $1,182.18
42. Tennessee $1,170.12
43. Arizona $1,152.50
44. North Carolina $1,130.45
45. Massachusetts $1,043.80
46. Iowa $1,039.04
47. New Hampshire $1,011.23
48. Wisconsin $1,010.93
49. Ohio $999.86
50. Vermont $968.58
51. Maine $902.85

Drivers in all these states would be well advised to get a better understanding of how their premiums are calculated — a better option than moving! Even in the states toward the end of the list there are many options other than raising your deductible to lower your payments. Maybe just seeing where your state falls in comparison to the rest of the nation will motivate you to do the most important thing — pay attention to your car insurance! Don’t just let it sit there wasting your hard-earned dough.

Michigan Drivers To See Rate Hike in July

In the battle to save money on car insurance, the people in Michigan just got slammed with a new setback.

The Detroit Free Press is reporting that effective July 1, 2010, drivers in Michigan will have to pay more than ever – $143.09 per each vehicle insured – to pay for the medical care of people who are severely injured in traffic accidents.

The new payment is $18.20 more than the current payment, and the money goes to the Michigan Catastrophic Claim Association (MCCA), an organization which covers the costs of automobile accident medical claims that total more than $480,000. This year’s assessment is the largest since 1978, when the MCCA was originally created. The annual fee was raised on April 1st in order to cover an expected $2 billion deficit caused by a combination of decreased investment income and increase medical care costs.

In 2009, a representative of the MCCA said, the organization, which is comprised of several insurance companies, had to pay out $811 million for catastrophic injuries. This year, it estimates that 1,200 more injured people will qualify for their coverage.

Michigan is the only state in the country that requires car insurance to cover unlimited medical costs. The MCAA was created to help share the load of exceptionally large claims.