Insurance Companies Drop Hawaii Auto Premiums

Hawaii auto insurance companies are dropping their Hawaii rates as local traffic accidents and claims fall.

Insurance Commissioner J.P. Schmidt said the state has approved rate reductions for four major carriers in Hawaii during the past several months.

“Insurance companies are in pretty good financial position and they’ve had fairly good profits from the prior years,” Schmidt said. “When that happens insurers start looking to expand their market share or maintain the good customers they have … by dropping premiums.”

State Farm Insurance Co., the state’s second-largest auto insurer with about 129,000 policyholders, cut rates for all of its customers by an average 5.1 percent in May.

Carolyn Fujioka, State Farm spokeswoman, said the number of traffic accidents and the amounts paid out in claims have gone down in recent years, allowing companies to pass on cost savings to consumers.

Fujioka said State Farm’s most recent rate cut, which translates into an average savings of about $40 per driver, came after the company lowered rates by 5 percent last October and another 5.9 percent in October 2005.

Since the early 1990s, the company’s rates have dropped 38.1 percent, she said.

Geico Insurance Co., the state’s largest carrier, recently lowered premiums for its 167,000 Hawaii customers by an average of 1 percent.

Smaller insurers have cut rates by 8 percent to 15 percent.

Hawaii premiums have also been declining in response to reforms of the state’s no-fault insurance law made in 1996 and 1997.

In the mid-1990s, Hawaii had the second-highest auto insurance rates in the nation behind New Jersey. Today, Hawaii is the 22nd costliest state for auto insurance, according to data compiled by the National Association of Insurance Commissioners.

But Birny Birnbaum, a Texas-based insurance economist and a former regulator for that state, said Hawaii prices aren’t falling fast enough.

He said local insurers used only 48 percent of the $636 million in auto insurance premiums they collected in 2005 to pay claims.

Insurers are profitable when claims represent 65 percent to 70 percent of the premiums collected, he said.

The National Association of Insurance Commissioners’ data says the local industry’s return on net worth — a measure of overall profitability — climbed from 10.3 percent in 2002 to 19.6 percent in 2005.

A 10 percent to 15 percent return is generally considered healthy.

“They’re getting a tremendous profit margin,” Birnbaum said.