Auto Insurers Face Stiff Competition In CT Market

If you can’t find auto insurance in Connecticut, you’re probably not trying hard enough.

Competition in the state is at an all-time high, and that means cheaper rates for consumers and fewer residents struggling to find a company to underwrite their coverage.

The number of drivers in the state’s high-risk pool has plummeted from 162,000 in 1987 to about 2,500 today, a 6,394 percent decline.

The risk pool is made up of drivers who are uninsured either because there are no companies willing to write their coverage or because they can’t afford it.

“The size of the risk pool has shrunken dramatically over the years, which suggests our market is extremely competitive,” said state Insurance Commissioner Thomas Sullivan.

At the same time, insurance rates have leveled off or decreased in the state.

In the 1990s, Connecticut had the fifth or sixth highest average auto insurance premiums in the country.

From 2001 to 2005, the state’s average premium for personal auto insurance rose by about 9 percent to $991, making it the ninth most expensive state to buy auto insurance in, according to statistics provided by the Insurance Information Institute.

Since then, the state has fallen to 11th place, with rates remaining stable or declining in certain areas of coverage, Sullivan said.

Meanwhile no auto insurance company has a double-digit market share in the state.

Flex Rating

The competition is being bred by a variety of factors, but none more important than the state’s adoption of a flex-rating system for auto insurance regulation in 2006.

Such a system allows insurers to file rate changes with regulators and use them immediately as long as they average 6 percent or less, Sullivan said.

Prior to 2006, insurers were required to get approval from the state Dept. of Insurance before adjusted rates could go into effect. That type of system is considered one of the most stringent forms of regulation. It kept some players out of the Connecticut market, often because it could take weeks or even months to get new rates approved by the state.

Since then, the number of auto insurance companies doing business in the state has increased dramatically. There are currently 302 automobile underwriters for commercial and personal lines insurance in the state, up from over 200 who wrote coverage in 2004, said Bob Passmore, director of personal lines for the Property Casualty Insurers Association of America.

Insurance companies are attracted to states with flex-rating systems because it allows them to change their rates more freely so they can adapt to current market conditions, a key component to creating a competitive environment.

“The system allows insurers to lower rates more quickly because they know they can increase them if the market turns against them.” Passmore said. “That benefits the insurers and the consumers.”

Safer Cars, Costly Gas

But competition is not something that is only unique to Connecticut. Auto insurance companies around the country have seen many favorable trends in recent years that have allowed them to control their losses and boost their bottom lines, said Bob Hartwig, president of the Insurance Information Institute.

For example, people are driving safer cars, and that helps minimize crash injuries. At the same time high gas prices are keeping some people off the roads, and that means fewer accidents are occurring.

The tough laws that Connecticut recently passed for teen drivers, which increases the late-night curfew for drivers under 18 and doubles the required behind-the-wheel instruction, should also help to reduce accidents, industry officials say.

All these factors help lower risks for auto insurers writing coverage in the state.

That has led many new players to enter the market since, “Profitability breeds competition,” Hartwig said.

Insurance companies have also developed much more sophisticated underwriting standards that enable them to more accurately match risk with price, Hartwig said.

“Past insurance history, claims history, the type of vehicle an individual drives, those are all taken into account when insurers are trying to determine premium rates,” Passmore said.

Some insurance companies even use an individual’s credit score, among other criteria, to determine rates.

As new competitors hit the market, insurers have been forced to develop new, less expensive and aggressive products to make themselves stand out with consumers.

Special Discounts

Allstate Insurance Co., for example, unveiled “Your Choice Auto” in 2006, a product that has become a major selling point for the company, said Tracey King, a communications manager at Allstate.

“It allows consumers to pick a level of coverage that fits their needs and budget,” King said. Consumers can get $100 off their collision deductible when they sign up and an additional $100 off for every year they don’t have an accident for up to $500.

In addition, for every six months of accident-free driving, customers have the opportunity to earn an added bonus of up to 5 percent that will be applied to their next renewal premium.

Competition also forces companies to loosen their standards for coverage; a direct correlation as to why the state risk pool has decreased so dramatically over the years.

“Competition will make insurers look at people with less than perfect driving records and find ways to sign them up,” Hartwig said.