Insurance Blog

Elevated Gas Prices Lead to a Decrease In Auto Insurance Rates

How can increased gas prices lead to lower auto insurance rates?  Well, when drivers don't drive as often, there are less accidents on the road.  When auto insurers' accident claims begin to diminish, rates for auto insurance go down.

With gas prices remaining very high, Americans are not driving as much as they used to.  In May of 2008, the Federal Highway Administration reported that drivers in the U.S. are driving at an historic low.  The VMT (vehicle miles traveled) in March of 2008 dropped by 4.3% compared to the previous year.  This marked the steepest dip since 1942, when the Federal Highway Administration began reporting traffic trends. 

For an auto insurance company to adjust its rates downward, they just need to file their new rates with each state that they conduct business in.  They are not limited to filing at certain times; they can file adjusted rates at any time and respond to fluctuations in the market very quickly.  Numerous states have a  system called "use and file", which allows insurance companies to implement the new rates and file them officially afterwards.

Competition can heat up when rates begin adjusting, either upward or downward.  In states that require an approval, they cannot adjust their rates as quickly as insurers in states that allow the system of "use and file".  California and New York are among the states that require a prior approval before new rates are allowed to be enacted.