May 4, 1999
 
 
 

                   Auto-Insurance Rates Declined in 1998,
                   But Bills Rose on Newer, Costlier Cars

                   By DEBORAH LOHSE
                   Staff Reporter of THE WALL STREET JOURNAL

                   Automobile insurers, following in the footsteps of industry leader State
                   Farm Mutual Automobile Insurance Co., have been cutting prices, making
                   1998 the first year of rate declines across the nation since 1973.

                   But many consumers haven't yet been able to lower their household
                   insurance budgets. While the rates that determine car-insurance premiums
                   are clearly on the downswing in almost every state, many families are
                   buying newer and more-expensive cars, including sport-utility vehicles,
                   which are costlier to insure, according to the Insurance Information
                   Institute, an industry trade group. "People are actually shelling out more
                   dollars, often because they are trading up," said Robert Hartwig, the
                   institute's chief economist.

                   The trade group plans to release the 1998 rate-reduction data Tuesday,
                   confirming a trend that surfaced in early 1998 when State Farm reported
                   its 1997 auto-insurance rate decreases outnumbered increases for the first
                   time since 1975. The trade group's figures show that car-insurance rates
                   industrywide fell 2.8% in 1998.

                   But the amount of money American households actually spent on per-car
                   insurance rose a slight 0.5%, according to separate data from the National
                   Association of Insurance Commissioners. The good news for consumers
                   on this front: Actual per-car expenditures are projected to fall about 1%
                   this year, according to the institute's Mr. Hartwig.

                   The rate reductions are possible because insurers have enjoyed several
                   years of lower costs as a result of safer cars and safer drivers,
                   theft-prevention gadgets and tough drunken-driving rules, experts say. The
                   current downward trend is projected to continue, according to Mr.
                   Hartwig, with declines more pronounced for people who qualify for special
                   safety-driven discounts. The institute expects a 4.5% decrease in 1999.

                   The lower costs also result from heightened competition from upstart direct
                   marketers such as Geico Corp., a unit of Berkshire Hathaway Inc., and
                   American International Group Inc.'s direct-marketing operations.

                   Still, many critics contend that insurers have enjoyed these favorable trends
                   for years and dragged their feet in sharing the good times with consumers
                   in order to keep profits high. Last year, before the rate cuts started in
                   earnest, "We said these guys are gouging us a little bit," said Robert
                   Hunter, director of insurance for the Consumer Federation of America.

                   Companies counter that they simply have been cautious, waiting to make
                   sure the trends proved sustainable before filing with states for rate changes.
                   "You want to avoid filing rate decreases and then having to raise rates in
                   the short term" because the trends turn out to be temporary, said Marvin
                   Johnson, vice president of personal-lines pricing at Nationwide Insurance
                   Cos., part of Nationwide Mutual Insurance Co.

                   At State Farm, Gary Grant, the company's chief actuary, notes that State
                   Farm has returned about $4 billion to car owners over the past two years
                   in the form of rate drops and dividends.