Florida auto insurance hikes far outpace nation

Apr 25, 2008

Herald Tribune–April 25, 2008

Auto insurance rates in Florida have climbed nearly 50 percent faster than the national average, according to a new study.

The Consumer Federation of America says auto coverage in Florida jumped 74.3 percent from 1989 to 2005, compared with a nationwide increase of 50.2 percent.

The reason: Florida allows auto insurers to impose rate hikes before regulatory approval, even though the state can later disapprove any increases, the consumer advocacy group said.

Florida drivers in 2005 paid the nation’s sixth-highest average insurance premium of $1,063, up from $610 in 1989.

The national average in 2005 was $829, up from $552.

Auto rates rose an average 68.1 percent in the 23 states that, like Florida, employ a "file and use" regulatory system, the federation reported. The increase averaged 54 percent in the 15 states that require approval before they can raise rates.

The CFA says its study shows consumers fare best under the prior-approval system, which the insurance industry is lobbying Congress to weaken.

"Not only are rate changes held down, but competition is not dampened and profits are reasonable for the insurers," said J. Robert Hunter, the group’s director of insurance.

An insurance industry supporter scoffed at the study, saying it ignored driver risk and overall pricing.

"Having the government hold down rates arbitrarily is not a good way to encourage road safety or, indeed, save consumers money," said Eli Lehrer, senior fellow with the Competitive Enterprise Institute.

Lehrer says the federation report lauds California for its average 12.9 percent rate increase during the study period, when those drivers still pay some of the highest auto rates in the country.

More states are moving away from government control in favor of freer competition, he said.

"CFA also wants states to mandate that private companies ignore legitimate risk factors in favor of having government bureaucrats decide what factors make drivers ‘safe’ and ‘unsafe,’" he said.

Florida and several other hurricane-prone states were among the least profitable for insurers from auto coverage, according to the federation report.

Auto insurers in Florida posted a 4.7 percent return on net worth during the study period, compared with the national average of 8.1 percent.

Incidentally, the Competitive Enterprise Institute gave Florida an "F" grade for its regulatory burden on property insurance in its latest study.