Auto insurance companies are making significant profits on New York drivers through higher insurance premiums, despite a drop in claims payments, according to a new report from New York City Comptroller William Thompson, Jr.

According to the study, auto insurers reported $10.5 billion in earned premiums in New York in 2005, a jump of nearly 29 percent from $8.2 billion in 2000. During the same period, incurred losses dropped by more than 20 percent, from $6.4 billion to $5.1 billion. The report states that premiums increased 33.8 percent nationally, moderately faster than in New York, but losses increased 12.9 percent nationally.

The report also says premium increases in the state since 2001 have been substantially greater than the inflation rate, and exceeded 40 percent in some areas for some major insurers.

"Car insurance premiums are driving New York City drivers into a financial ditch,” said Thompson. "Insurance companies are deriving record profitability at the expense of New York City drivers. The auto insurance industry needs to put the brakes on these increases, and take immediate steps to reduce premiums by at least $1.5 billion."

Insurance industry groups responded that the report does not justify its claims, and makes recommendations that could harm motorists.

"This report doesn’t support its political headlines," said David Snyder, AIA vice president and assistant general counsel. "The report tries to isolate a single year and draw conclusions that do not hold up over time."

Snyder noted that New York's prior approval system of setting rates "delays insurers' ability to respond to market conditions and lower rates quickly to be competitive. If New York's policymakers want a system that is more responsive to the ups and downs in insurance loss costs, then they must give insurers the regulatory freedom to compete and respond to market conditions and trends."

The New York Department of Insurance uses a prior approval method of setting rates, meaning insurers need approval for both rate increases and decreases. Insurance industry representatives say the system makes rates less responsive to market forces.

"The system is an abomination," said Bernard Bourdeau, spokesperson for the New York Insurance Association. "This is a cyclical business. No one is doing any consumer any favor by making companies slow down on lowering their prices."

Bourdeau also pointed out that the insurance industry suffered significant losses before returning to profitability in 2003.

Thompson's report, "Highway Robbery: The High Cost of Automobile Insurance in New York," states that from 2000 to 2005, the loss ratio (the amount of each insurance premium dollar that goes to pay claims) in New York fell from 78.3 percent to 48.4 percent of premiums, based on figures from the National Association of Insurance Commissioners. Only 48.4 cents of each premium dollar was paid to policyholders, a nearly 30 percentage point drop from 2000. This would make New York's loss ration the lowest in the nation.

In 2006, the average of the representative premiums published in the Insurance Department’s annual Consumers Guide to Automobile Insurance for the state’s four largest insurers for minimal, required coverage for a 35-year old male exceeded $1,500 in Urban (southern) Bronx and Brooklyn. Since 2001, in the Urban Bronx insurance rating territory, this amount increased 51.2 percent and in Brooklyn it went up 24.5 percent.  (The average was computed using 2005 premiums for Allstate because the Consumers Guide substituted a different Allstate subsidiary in 2006.)

In a statement released by the Insurance Department, superintendent Howard Mills said the department had reduced premiums by approximately $500 million per year, in part through reducing losses from insurance fraud. He also noted that "thirty companies have filed rate reductions this year, and we are in ongoing discussions with other companies to reduce premiums."

In addition to asking insurers to lower overall premiums in the state by 15 percent (or $1.5 billion per year), Thompson wants municipalities to be allowed to petition the Insurance Department for rate reductions. He also asked for the Department's annual consumer guide to include a comprehensive list of pricing information; for insurers to publish their loss rations according to a uniformly defined rating; and for the state to create an Office of the Insurance Consumer Advocate to represent consumer interests at the Insurance Department.

"For too long, auto insurance companies have been price-gouging New Yorkers," said Thompson, a possible 2009 mayoral candidate. "Rising premiums are becoming cost prohibitive and squeezing New Yorkers even more as they struggle to pay their rent, food, gas and other necessities. A reduction in premiums is the right direction so that drivers can afford to stay on the road."