Driving less? Ask for auto insurance adjustment

Tuesday, June 10, 2008

As the price of gasoline tops $4 a gallon nationwide, the Consumer Federation of America (CFA) has released a consumer alert based on its analysis showing that consumers who are driving less could save an average of 5%- 15% on their automobile insurance rates—about $47 to $142. But these increases could mean immediate savings on automobile insurance as drivers react to high gas prices by using mass transportation, car-pooling, taking fewer trips to the store or curtailing their vacations. At a national average of over $4 per gallon, gasoline prices at the pump were 93.2¢ higher (30%) on June 9, 2008 than they were a year before. While this has created great hardship for many Americans, higher gasoline prices may also mean immediate auto rate savings for some and ultimately lower rates for all consumers. According to Robert Hunter of CFA, auto insurance rates vary based on many factors, including where you live, your age and marital status, and the type of car you own. Most insurers factor in the number of miles you drive when setting rates. Here are some of the ways insurance companies reflect your driving mileage:

• If you've stopped driving to work, you might be eligible for an immediate rate reduction. If the rise in gas prices caused you to stop driving to work or school and you are car-pooling or using mass transit, you can have this surcharge removed. Rather than being rated as a "drive to business or school" use, you will now be rated as a "pleasure" use with a lower rate. Call your insurer now and ask for a reduction in your rate and a refund if you are due one. Savings will vary but will average about 5%- 15%.
• If you now only drive part of the way to work or school, you may be due a rate reduction. Insurers usually charge more if you drive longer distances to work or school, instead of just driving to a train or bus station, for example. While you will still be classified as driving to work or school, you may fall into a lower price category.  Savings will average 5%- 15%.
• If you reduced the miles you drive to work or school or in other ways, such as walking to the store or consolidating trips, you may be due a rate cut.  Many insurers have several rate categories, depending on the number of miles you drive. Suppose you have reduced the number of miles you drive per week by 10 percent because of higher gasoline prices, from 200 to 180. This would represent a reduction of more than 1,000 miles driven a year, from 10,400 to 9,360. Many consumers would receive a lower rate in this situation, because insurers often use 10,000 miles as a key "break point" in setting rates.  Savings will average 5%- 15%.

Savings will vary by insurer. Some reductions in the number of miles driven may not produce savings at all. The average auto insurance premium in the U.S. is $830, so a 10% savings would represent $83. A 5% reduction would be $41.50. Savings would likely be more significant for consumers who are now paying higher rates for insurance, such as those who are younger or who live in urban areas. On the other hand, an adult living on a farm who pays only a few hundred dollars for auto insurance will save less.