Monday, November 15, 1999

State Farm
to cut Hawaii
auto rates 4.8%

The reduction, effective Dec. 15,
comes as the state steps up
pressure on insurance firms

By Peter Wagner


State Farm Mutual Automobile Insurance Co. today announced rate cuts for Hawaii customers averaging 4.8 percent, effective Dec. 15.

The reduction will bring total cuts in the company's rates to 27.6 percent in the past two years, the company said.

State Farm is among several auto insurers in Hawaii that have lowered their rates voluntarily in recent years. AIG Hawaii Insurance Co, Allstate Insurance Co., First Insurance Co. and Progressive Auto Insurance have also announced rate reductions.

Insurance companies say they are passing along savings because fewer claims are being filed.

That trend, they say, is a result of air bags and other safety improvements in cars, tougher drunk driving laws, increased attention to insurance fraud, and general cost-cutting measures at insurance companies.

But recent cuts have come under the watchful eye of Wayne Metcalfe, the state Insurance Commissioner, who in August threatened to invoke a 1998 insurance reform law mandating cuts of 20 percent to 35 percent if companies didn't take action themselves. Noting sluggish response to the law from insurers, Metcalf issued an order requiring companies to file a plan for new rates by Dec. 15.

Hawaii's $500 million-plus auto insurance industry was the most profitable in the nation in 1996 and 1997, according to the Auto Industry Report, an independent newsletter.

Birny Birnbaum, a Texas insurance economist and former insurance regulator, recently called Hawaii's insurance profits "wildly excessive."

According to Birnbaum, the auto insurance industry in Hawaii earned a return on net worth of 26.6 percent in 1997, against a national average of 11.7 percent.

The average Hawaii premium in 1997 was $1,034, the fourth highest in the nation.

State Farm says it has returned $21 million in dividends to its Hawaii policy holders since November 1997. The new cuts will represent $4.4 million in annual savings, the company said.

While changes will vary depending on individual policies, most premiums for collision, comprehensive and uninsured and underinsured motorists coverages are expected to drop, the company said.

State Farm says it insures about one out of every five cars in Hawaii.

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