Allstate Raising Rates 6.9%; Other Firms May Follow

Allstate Insurance, the state’s second-largest auto insurer, is raising California drivers’ premiums 6.9% in a move that is expected to trigger other insurance companies to follow suit.

Allstate is the largest California insurer to boost its rates after years of price-cutting in the 1990s reduced overall premiums by more than 10% statewide. Allstate, which insures 2.1 million California drivers, lowered its own rates by 22% from 1996 to 1999.

Insurers have been predicting that auto insurance rates would rise since last spring. At that time, analysts said the California price war had gone too far, and a trade group warned that higher medical costs and jury awards would force premiums up nationwide.

But competition in California kept the lid on auto premiums, especially after market leader State Farm announced two decreases of 5% each, said Brian Sullivan, an independent insurance analyst and editor of an auto insurance newsletter.

Allstate blamed a rise in the number and severity of accidents for the increase, which is scheduled to take effect May 18. Rate changes of less than 7% do not require a hearing before the state Department of Insurance and usually are approved automatically by state regulators.

The increase would add about $48 to an annual $700 premium. Allstate does not provide average annual premium figures for its customers.

Premium figures collected by the National Assn. of Insurance Commissioners show the average California premium dropped from $803 in 1995 to $718 in 1998, the latest year for which statistics are available.

The lower rates were fueled by an influx of out-of-state insurers and smaller, aggressive local companies such as 21st Century and Mercury Insurance that forced the bigger insurers--State Farm, Allstate, Farmers and Automobile Club of Southern California--to reduce their premiums. State Farm was among the last to respond, lowering rates after its market share slipped from more than 22% to about 16%.

“For years, it was ‘how low can you go’--it became like a limbo contest,” said Candysse Miller, director of the Insurance Information Network of California, a trade group.

The premium war took its toll. Some of the smaller companies, including 21st Century, have increased their rates in the last year, while larger companies, including Allstate, boosted premiums for their worst drivers--the so-called nonstandard market. Mercury plans a 6.5% increase for its nonstandard drivers but no change for its regular or “preferred” customers, said Bruce Norman, Mercury’s senior vice president of marketing.

21st Century, the state’s seventh-largest auto insurer, increased its rates by 6.8% in November and has requested an additional 5% boost to take effect next month in an effort to stem losses on its auto insurance business, said spokesman Ric Hill. Even with the increases, the company’s rates will be 15% less than five years ago, when the company became one of the state’s most aggressive price cutters.

Insurers and analysts predict more companies will boost their rates now that Allstate has taken the lead. Even as costs rose, many insurers were reluctant to raise rates and risk losing market share, Miller said.

The trade group’s parent organization, the Insurance Information Institute, warned last year that medical costs were up 50% since 1997 and the median jury verdict in auto accident cases had risen 23%.

Rising repair costs also are hurting insurance companies’ bottom lines, said Carol Thorp, spokeswoman for the Automobile Club of Southern California, the state’s fourth-largest insurer. The Auto Club has not filed for a rate increase but could not rule it out, Thorp said.