Car Insurers Rev Up Their Rates,
But Bargains Are Still Out There

Get ready to pay more for car insurance.

Rates have already risen 8% in the past year -- the biggest jump in a decade -- and more increases are in the cards. Allstate, the country's second-largest auto insurer, has boosted premiums in New York by nearly 11%. Nationwide Mutual has raised California rates 8.7%.

Several factors are behind the increases. High among them: The nation's largest auto insurer, State Farm Mutual Automobile Insurance, had been keeping its rates artificially low to gain market share -- and many competitors had to follow suit. But after losing billions of dollars last year, State Farm is scrambling to raise premiums. They're up as much as 7% in California, 9% in Texas and 10% in Florida.

At the same time, the popularity of giant sport-utility vehicles is leading to costlier accidents. "If an SUV blows a red light and hits a Chevy Cavalier, the damage to the Cavalier is terminal," says Jerry Carnahan of Farmers Insurance Group. The surviving SUV also costs a small fortune to rebuild. Another problem: Falling interest rates have cut into insurers' investment returns.

SURFING FOR SAVINGS Test-drive these sites to compare rates: Insweb.com1: Forty insurers offering quotes. Insurance.com2: Several carriers including Allmerica, Travelers, Hartford. Progressive.com3: Offers Progressive's rates plus selected other carriers. Geico.com4 and Amica.com5: The sites offer a convenient way to compare these two low-cost providers with the premium firms' rates.

But there are still ways for drivers to save significant money. A recent study by one major insurer found that the cost of a six-month policy -- for the same driver and coverage -- varies an average of $524 from one company to another. That variation can be especially wide at times like this. "When prices are changing a lot, that's the time to shop," says Robert Hunter, director of insurance for the Consumer Federation of America.

Some companies such as Progressive, Safeco and Geico Direct, already raised rates last year, making them less likely to do it again. And those who shopped for auto coverage as recently as last year may not have the lowest rates, since a blip on your driving record or even a birthday can affect rates.

Comparison shopping has gotten easier in recent years, thanks to the Web. Several sites offer quotes from multiple insurers, including Insweb.com (www.insweb.com⁶), which lists 40 carriers including Allstate, Amica Mutual Insurance and Northwestern Mutual Life. That's not to say it will give you 40 quotes to choose from -- in a recent test run, the site returned just two quotes.

The insurance companies pay Web sites like Insweb for referrals. When a customer fills out a policy application, that counts as a referral. For some carriers, if Insweb signs up the customer directly, it gets a small cut, as well.

Insurance.com (www.insurance.com⁷), run by Fidelity Investments, provides as many as four quotes from carriers including MetLife, Travelers Property Casualty, Hartford Financial Services Group, Liberty Mutual Insurance and Kemper Insurance.

If you've got an excellent driving record, companies like Amica Mutual and Erie Insurance Exchange will often offer better rates, because they tend to be more choosy about their customers, which means you aren't paying for other people's wrecks. Some lower-cost insurers such as Amica and Geico Direct don't always show up on the multiple-carrier sites so it's worth visiting their Web sites independently.

And it's still worth checking with an old fashioned independent agent. "The insurance market hasn't transformed itself in the way that other services and products have," says Rob Schneider, a senior staff attorney with Consumers Union and former associate insurance commissioner in Texas. "The system is still mostly agent-based, so it's not necessarily the case that you'll see substantially lower prices if you do all the legwork yourself."

Throwing in the Towel

For insurance companies, the business has been so tough that some insurers are simply throwing in the towel. Kemper Insurance earlier this month said it's selling its personal lines business to Unitrin. That follows the exit of W.R. Berkley from the market last October. Other carriers are expected to leave the business in coming months.

Blaming State Farm

Industry executives blame State Farm for keeping prices artificially low. State Farm increased its share of the auto insurance market by 4.7% last year, its fastest growth rate in a decade. But the low rates fueled a loss of $5 billion last year, with the company losing an average of $100 per policy.

It's not just State Farm raising rates. Allstate, the nation's second-largest auto insurer, raised premiums in New York by 10.5% and in Texas by 7.5%. Progressive raised its rates in Texas by 12%. One big reason premium rates are climbing fast at insurers other than State Farm is that its competitors will feel less pressure to restrain from raising rates for fear of losing market share.

A State Farm spokesman said the company sets its rates based on its own actuarial work and claims analysis. State Farm's actions, he said, are based on what's best for the company and its customers.

Write to Christopher Oster at chris.oster@wsj.com⁸

Updated April 24, 2002