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Auto Club to cut insurance rates

February 06, 2009|Marc Lifsher

SACRAMENTO — Insuring a car is about to get a little cheaper for many Southland motorists.

The Automobile Club of Southern California, the state's fifth-largest car insurer, is expected to announce a 5.4% rate cut today that will save 1 million customers an average of $100 per vehicle.

The new rates become effective April 1 for new policies and those renewed on or after that date.

The auto club cited a drop in policyholder loss claims during the last two years as well as its tight controls on operating expenses for creating the flexibility to lower premiums.

"We run a very lean operation," said Alice Bisno, the senior vice president for public affairs.

California Insurance Commissioner Steve Poizner, who approved the auto club rates, praised the company for its "consumer-friendly and smart business practices."

The California Department of Insurance also pointed to California's strict regulatory environment -- under the 2-decade-old Proposition 103 initiative -- as well as recent changes in people's driving habits and vehicle preferences for keeping rates in check.

Proposition 103 requires that rates mainly be based on a driver's safety record, annual miles driven and years of driving experience.

Rating factors that are important in other states, such as a policyholder's credit score or the ZIP Code where a car is registered, are either not considered or given less weight in calculating premiums, the department said.

But one consumer advocate criticized the new reduction for being only half what it should have been.

"Based on an initial review, this is not a sufficient rate cut," said Douglas Heller, executive director of Consumer Watchdog of Santa Monica.

The Auto Club's lower premiums are the latest evidence that insurance costs in California are declining, even as they are on the rise in other states.

A survey of average automobile insurance quotes by Insurance.com, an online insurance agency in Solon, Ohio, shows that California rates dropped 2.7% -- unadjusted for inflation -- from 2006 to 2008. In contrast, nationwide rates jumped 8% in 2008.

A number of factors have worked together to keep rates relatively low in California, said Sam Belden, the vice president of Insurance.com. The state's nearly 27 million licensed drivers and 30 million vehicles offer a lucrative, highly competitive market for insurance companies.

"Clearly, California is just so big that it's worth the attention" of insurance companies, Belden said. "It amazes me when I go out to California that it seems like every other commercial is an automobile insurance commercial."

Rates in California, which tend to rise and fall throughout the year, have dropped about 3% in the last six months, Insurance.com reported.

Part of the reason for the reduction is that people are driving less, whether because of higher fuel prices in the middle of last year, the deepening economic recession or changes in habits, such as taking public transportation, Belden said.

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marc.lifsher@latimes.com

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