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Auto insurance rates to rev up

by Nora Edinger

REGIONAL EDITOR

If summer gas prices have left you feeling empty, hang on to your steering wheel.

Automobile insurance rates are expected to increase 2-6 percent by the end of the year, according to the Insurance Information Institute in New York.

That's on top of the 1.5 to 7.5 percent increase the state Insurance Commission reports many West Virginians already paid in the first half of 2001.

Complex causes

"The rates are not based on prediction factors; they're based on experience," said Jeanne Salvatore, an institute spokesperson.

Institute statistics indicate three key factors are shaping that experience and are reversing a late 1990s trend toward decreasing rates. They include an increase in costs for medical care, replacement auto parts and jury awards.

Robert Hartwig, chief economist for the industry-funded institute, said the latter two factors have less to do with inflation than they do with court activity.

"A court ruled against State Farm in 1999 and held them liable for about $1 billion for repairing with generic parts," Hartwig said. "That had a chilling effect."

After the ruling, he said, most companies abandoned their use of non-manufacturer parts and their repair costs increased by 30-40 percent.

The jury-award factor is similar. Hartwig said the average vehicular-liability award was $175,000 in 1994. By 1999, it was $316,000.

State of the state

West Virginia is faring better than many states -- at least prior to the trend toward increases.

In 1999, the most recent year on record, the state ranked 22nd for average premium costs, according to institute statistics. The average state premium was $684 that year, compared to a $683 national average.

According to the state Insurance Commission, most of the state's top-10 companies filed for an increase in late 2000. Because increases do not show up on premiums until renewal notices are sent, many local consumers did not see an increase until this spring.

John Mooney, commission spokesman, said companies can file for an increase as needed, but have to prove a loss to get one approved.

But a successful increase application can be a two-edged sword, according to Bob Boyle, owner of Mountaineer Insurance Group in Fairmont.

"Rate increases cause people to stop their policy," Boyle said. "People will change for as little as $5 a month."

Boyle specializes in lower-premium, low down-payment policies, although he doesn't recommend frequent switching because of potential service problems. He said such policies are growing more difficult to find as jury awards increase.

He's afraid West Virginia's reputation for litigiousness may ultimately cause some carriers to pull out and decrease competition.

"In order for a company to stay in a state, they have to make money there," Boyle said.

Ruby Fisher, an independent agent with Linger & Associates of Clarksburg, said there are already some market segments where there is little competition.

Fisher said young drivers who are not covered on a family policy may find it difficult to get coverage without paying much more than they would have a couple of years ago.

"Once (one company) starts, they all tend to go up," Fisher said.

Salvatore said that there is a trend within the trend. The safest drivers will see lesser increases during an up tick than those with a poor record.

Regional editor Nora Edinger can be reached at 626-1447 or by e-mail at nedinger@exponent-telegram.com.

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