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Letter to the Editor
Thursday September 5
InsWeb Auto Insurance Index Suggests Auto Insurance Prices Nationwide Are Rising 10% Annually
InsWeb Corp. has introduced the InsWeb Auto Insurance Index. The InsWeb Auto Insurance Index is designed to identify and track general pricing trends of personal auto insurance sold through the Internet. The Index suggests that as of the second quarter of 2002, prices for auto insurance nationwide have risen approximately 40% since the first quarter of 2000, or, roughly 16% annually. The results are based on hundreds of thousands of consumers who complete InsWeb's auto insurance quote form each quarter."We are delighted to introduce the InsWeb Auto Insurance Index, leveraging the vast number of consumer profiles and applications available in our database," said Mark Guthrie, InsWeb's President and Chief Executive Officer. "This index, which we believe to be the first of its kind, could be a useful early indicator of pricing activity in the personal auto insurance marketplace and therefore help both carriers and consumers react more quickly to changes."
After nearly a decade of flat to modest price increases in the automobile insurance industry, prices have increased substantially over the past two years. During the time period analyzed, from the first quarter 2000 to the second quarter 2002, the index for 6-month policies rose 54% and the index for 12-month policies increased 21%. For example, a married couple with male aged 35 and female aged 37, driving a typical four-door sedan, with no violations and no accidents, would have paid $1,500 for a 12 month policy in 2000 and $1,800 for the same policy in 2002.
Reasons for the increases include rising claims costs driven primarily by medical costs, significantly higher vehicle repair costs, rising jury awards and continued fraud and abuse, as well as lower investment income generated by insurers, mainly due to the dramatic reduction in interest rates and the decline in the stock market.
One way in which insurers can adjust their prices to changing economic and market conditions is to switch from offering 12-month policies to 6-month policies, enabling them to file for rate increases more frequently. Over the past ten quarters, carriers participating in the InsWeb marketplace switched to 6-month policies in dramatic fashion. Nearly 60% of the roughly 1.2 million quotes viewed by consumers during the second quarter of 2002 were for 6-month policies, as compared to less than 38% during the first quarter of 2000.
"With prices expected to continue to rise in 2002, insurers working with InsWeb should be able to target specific consumers to reach their new business goals, as well as keep an eye on their existing customer base, especially those customers with favorable risk profiles that may be sensitive to price changes," said Kiran Rasaretnam, InsWeb's Senior Vice President of Finance and Chief Actuary.
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