2 Insurers to Trim Rates for Auto Coverage

California’s auto insurance price war, which already had seen rates fall by an average of 5.5% in the last three years, heated up Monday as two companies announced rate cuts expected to pressure major insurers to follow suit.

Progressive Corp. said it trimmed premiums for the third time in 10 months, slicing an average 5.5% off customers’ bills. Progressive, a Mayfield, Ohio-based company that rose from obscurity in 1993 to become the state’s 10th-largest auto insurer in 1997, has reduced rates an average of 13.7% since last fall.

Meanwhile, the state Department of Insurance said it approved an average 4.6% rate cut for Safeco Insurance Co. policyholders, effective June 19. The Safeco cut comes on top of a 1.5% reduction approved April 30.

Progressive’s cut is an aggressive attempt by the upstart to grab further market share in California, a market seen as increasingly lucrative as safer cars, safer drivers and an aging population reduce insurers’ risk.

The latest reduction by Safeco is seen as more of a catch-up move.

Every major California auto insurer has cut its rates in the last year as new competitors enter the market. This is in stark contrast to the late 1980s and early 1990s, when companies fled the market after California voters approved Proposition 103, which mandated rate cuts and other reforms.

Observers predict more reductions ahead.

“The new crop [of insurers] is putting pressure on the larger companies to further decrease their rates,” said Candysse Miller, director of the Insurance Information Institute, a trade organization.

Before the latest round of cuts, state insurance officials said rates had dropped 5.5% in the last three years. Nationally, rates are also down more than 5%, thanks to more careful drivers, increased use of air bags, crackdowns on drunk driving and better-built cars, said Kenneth Adams, spokesman for the Western Insurance Information Service, a property and casualty trade group.

Insurers also credit Proposition 213, a voter-approved initiative that eliminates pain-and-suffering lawsuits for uninsured motorists, drunk drivers and felons fleeing a crime.

But some consumer groups say the premium reductions show that insurers have been overcharging customers for years.

“Reduced costs haven’t been passed on to consumers,” said Robin Kane, spokeswoman for Consumers Union in San Francisco. “There’s been a lot of room for insurers to cut rates and still make a profit.”

Progressive credits its brand of insurance marketing, which combines sales through independent agents with direct sales via telephone and the Internet, with lowering its costs and allowing rate reductions. Although the company has been trimming rates nationwide, it has particularly targeted the profitable California market, said David Pratt, Progressive’s Los Angeles general manager.

“We want to grow aggressively here,” Pratt said. “As we looked at our claims experience, we felt we could afford it.”

State Farm Insurance Co., California’s largest auto insurer with 20% of the market, refused to comment about its rate plans. State Farm cut its rates 5.3% last year.

“Because we’re the market leader, our concern is that if we say anything about future rate plans, we’d be violating antitrust laws,” said spokesman Bill Sirola.