Consumer Protection Update

The Truth Behind Auto Insurance Rates
Summer 1999

After many years of asking for insurance rate reductions, consumer received a modest reduction when the Texas Department of Insurance (TDI) finally ordered a 5.5 percent reduction in the auto insurance benchmark rate in December 1998. The reduction was the first step in bringing insurance rates more into line with the actual costs of providing that insurance.

The rates for insurance are controlled by the TDI with what is called a "benchmark band." The band establishes the highest and lowest possible rates regulated insurance companies may charge Texas consumers.

Recent studies report that insurance rates have been dramatically inflated and that insurance companies have been overcharging Texas families by more than $2 billion. As costs to insurance companies declined dramatically, TDI failed to reduce the benchmark band so that savings could be passed along to consumers.

The December 1998 benchmark band reduction was the first step in passing these savings along to policyholders.

As the factors listed below continue to reduce insurance company costs, consumers will have to "mobilize and organize" through groups like Texas Watch and Consumers Union to hold auto insurers feet to the fire on rate issues.

1. Record insurance industry profits. Insurance companies have been realizing dramatic investment and stock profits. In 1997, State Farm insurance earned $2.8 billion in investment income from premiums. Also in 1997, Allstate Insurance announced that company stock had more than tripled in the previous three years.
2. Decreases in the incidents of drunk driving, with the enactment of more than 1600 laws to deter drunk driving since 1980 have helped make all roads safer and reduced the number of accidents and fatalities caused by drunk drivers.
3. Cars are equipped with more safety features such as airbags, head restraints, glazed window technologies, anti-locking brakes and the use of new and safer materials in car manufacturing. These improvements have reduced the number of accidents and increased protections to occupants of vehicles involved in accidents.
4. Legislation requiring seatbelt use has been passed in every state to ensure protection of vehicle occupants.
5. Aging baby boomers are driving more carefully and avoiding collisions. With this large population of drivers paying more attention to careful driving, the number of collisions--and costs to insurance companies--are declining.
6. Milder winter weather in recent winters have reduced the number of weather related accidents.
7. Lower inflation has helped keep medical and vehicle repair costs under control.
8. Auto theft has decreased in many cities due to the increased use of theft alarms.
9. Increased telecommuting for work. As more workers begin working from their homes, commuting via modem, commuting related accidents during rush hours are diminishing.
10. Insurers' efforts to limit fraud by cutting unnecessary costs have reduced the amount of money lost to fraudulent claims.

For more information on insurance rates, check out the Texas Watch web site at www.texaswatch.org

This article was provided by, and reprinted with the permission of, the Consumer Law Information Center, a project of the Texas Trial Lawyers Association - the Lawyers who represent consumers.

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