Higher Gas Prices Drive Down Auto Rates, Drive Up Politics Over Regulation in New York

In New York, there exists a curious relationship between gas prices and insurance premiums, at least in government officials’ minds.

Gov. David Paterson said his state’s efforts to rein in insurance rates by asking insurers to “consider the impact of gas prices on people’s driving habits” resulted in a net gain for New York drivers of almost $515 million. That’s the difference between what they will end up paying and what insurance companies would have asked them to pay before the price of gas entered the rate calculation.

Paterson’s belief, which is supported by data from the federal government, is that as gas grows more expensive people drive fewer miles – and have fewer accidents. According to the U.S. Department of Transportation, for instance, July marked the ninth straight month with a decline in driving nationally. Since last November, Americans have driven 62.6 billion fewer miles than they did over the same period a year earlier. In June and July 2008, New Yorkers drove 907 million fewer miles than they did during the same period a year earlier.

So on Aug. 6 Paterson directed his insurance chief to require insurers to factor reduced driving into their rate filings. Prior to Paterson’s directive, New York auto insurance providers had requested 8 percent rate hikes on average this year.

“It’s simply counterintuitive to increase rates by 8 percent when people are driving less,” Paterson said. “Because of higher gas prices, New Yorkers are driving less and having fewer accidents as a result.”

When he issued his directive, 43 companies – covering 75 percent of New York drivers – had rate filings pending with the insurance department. As a result of being asked to factor in gas prices and lower mileage, many of the companies voluntarily withdrew or dramatically reduced their filed increases. Additionally, the state insurance department disapproved increases for any insurers that failed to provide adequate support for their filing or failed to respond to the instructions to consider the impact of gas prices.

Now the governor is taking credit for the withdrawn and reduced rate filings. In all, auto rates in the Empire State have since fallen by an average 1 percent, according to the state.

Paterson’s insurance chief agrees with his boss’ thinking. Superintendent of Insurance Eric Dinallo said. “Since trends are an important factor in setting auto insurance rates, we would have been remiss had we gone ahead with business as usual,” said Superintendent of Insurance Eric Dinallo. “When people drive less, they have fewer accidents and fewer claims. And the insurance rates should reflect that.”

Insurance companies, even though they pulled back on rate hikes, do not buy the argument that higher gas prices by themselves justify lower rates.

The insurer trade group, the Property Casualty Insurers Association of America (PCI), contends there are many factors that influence insurance rates and the number of miles driven shouldn’t be overemphasized when setting rates.

The state, PCI said, should be careful “not to draw overly broad conclusions based solely on assumptions,” especially when the facts may not support them.

According to Paul Magaril, PCI regional manager, a PCI study shows that while U.S. drivers are traveling fewer miles, and auto claims are decreasing in frequency, the cost of repairing vehicles continues to rise. Average claim costs in New York have increased by nearly 33 percent since 2000, according to PCI. The increase in the average cost per claim is substantially greater than the decrease in claim frequency, the group said, which puts upward pressure on insurance rates.

Topics Trends Carriers Auto New York Legislation Pricing Trends