State Farm Seeks Auto Insurance Rate Hike
St. Petersburg Times
Last Modified: Thursday, February 4, 2010 at 7:58 a.m.
Cost-sensitive Floridians have another increase to worry about: The price for auto insurance is trending up.
Among those leading the way is State Farm, by far the biggest player in Florida’s auto insurance market. The Illinois-based insurer filed with regulators this week for an average 9.2 percent rate increase for its 2.7 million auto policies statewide.
“We’ve seen the number of auto claims increase, and the cost of those claims increase and that’s reflected in our rate request,” State Farm spokesman Chris Neal said Wednesday. “We had several years in a row where we were reducing rates. … Clearly that trend has ended.”
With roughly 20 percent of the market, State Farm could be a bellwether for other insurers to follow. Some, including Allstate and Geico, have already made the plunge.
Last month, an average 16 percent rate increase went into effect for policyholders of Allstate Fire and Casualty, affecting about 24 percent of Allstate’s auto policyholders. Spokeswoman Amy Moore said Allstate Fire and Casualty customers face an average increase of $82 per six-month policy.
Both Allstate and State Farm cited the rising cost of doing business in Florida as the chief culprit. Moore said Allstate, which insures 1.7 million vehicles in Florida, has higher costs for bodily injury payouts, for medical payments, for personal injury protection (or PIP) and to cover accidents involving uninsured motorists.
Lynn McChristian, Florida representative of the Insurance Information Institute, tied the rising cost of auto insurance in part to the recession. Fewer people are buying insurance, or they are buying less than they need, which forces other drivers to make it up through higher premiums.
A study last year by the Insurance Research Council showed Florida in the top five of states with the highest numbers of uninsured motorists. About one out of every four Florida drivers does not have auto coverage compared with one in six nationally.
Auto insurance costs “are trending up nationally, and we have some (added) challenges in Florida,” McChristian said. “We have the high cost of fraud and that is a problem affecting our rates.”
In State Farm’s case, the two biggest factors are higher costs for bodily injury liability and personal injury protection, Neal said.
State Farm, which is also the state’s dominant private insurer for property coverage, has endured a rough year on the auto front. As of September, it had lost about 99,000 auto policies year-to-date, though its remaining base of 2.7 million policies still towers over all competitors.
Neal, who described the falloff as noticeable but “not precipitous,” said it was unclear how many auto policyholders left in retaliation for State Farm filing to withdraw completely from the property insurance market because of hurricane risks. In December, it struck a deal to stay while shedding 125,000 policies and raising rates 15 percent.
Unlike property insurance, writing auto insurance in Florida has been a profitable business drawing plenty of competitors.
For much of the last decade, drivers in Florida and much of the country have benefited from that competitive landscape through lower rates.
According to a recent report from the National Association of Insurance Commissioners, the average cost of auto insurance in the country fell by 2.6 percent in 2007. Auto insurance expenditures also fell by 1.8 percent in 2006 and 1.3 percent in 2005.
State Farm Florida said its overall premiums statewide decreased about 1 percent between late 2005 and 2009.
Jack McDermott, spokesman for the Florida Office of Insurance Regulation, indicated it’s premature to say we’ve moved out of the era of auto rate cuts.
“We have not observed any significant changes in the auto insurance marketplace in Florida, although recent rate filings have shown some indications of an upward trend in bodily injury expenses,” he said.
Regulators are reviewing State Farm’s request, he said, cautioning against assuming the filing is representative of the market as a whole.
Still, what the state hasn’t seen yet in rate requests may be coming down the pike.
McChristian of the Insurance Information Institute pointed out that medical costs rose by 3.2 percent in 2009 while auto body work costs rose 3.7 percent.
Recouping those costs, plus paying for rising incidents of fraud, is expected to trigger higher rates in 2010.
“It is a delayed effect,” she said.
Florida ranks as the fifth-most expensive state for auto insurance with an average expenditure of $1,043 in 2007, according to the institute.