Driving a Bargain

By Daniel Kadlec

After some fat years for insurance companies, motorists are finally sharing in the benefits of a safer driving climate. The average rate for auto coverage fell 2.8% last year--the first decline in 25 years. Premiums should fall an additional 4.5% this year, and motorists with good driving records may save even more. The best part is that you may get a rate reduction without having to ask. Competition is that intense. But don't count on it. Review your policy to make sure that you're not overpaying.

The lower rates have been a long time coming, given the powerful trends that have helped insurers to powerful profits. Start with safer cars: most vehicles now have air bags and anti-lock brakes. Autos are harder to steal too--newer models have security systems that disable the engine when you take the key out. Stiffened penalties have curbed drunk driving. And baby boomers have moved into the demographic sweet spot for cautious driving. Motorists ages 40 to 59 have a lower rate of traffic deaths than any other group.

Warren Buffett, the investor and head of Berkshire Hathaway, noted some of these trends two years ago, when his Geico insurance subsidiary doubled its projected 4% profit margin because the number of claims was decreasing. Last year margins were well over the target again. Buffett warned that such stellar results would not persist because they would soon invite competition. That's what has happened, and now he expects the industry's margins to contract as insurers cut prices to battle for market share--bad news if you own the stocks but not if you're a policyholder.

Geico and State Farm have been among the leaders cutting prices, and others will be forced to match them. So pull out your policy and see if your insurer is following suit. If not, play hardball. As when asking for a lower credit-card or mortgage rate, if you make it clear that you're ready to shop around, you'll probably get the best results. Don't think it's worth your time? Fair enough. A 3%-to-5% reduction may not amount to much, and many companies will give it to you automatically when you renew. But chances are, it's time to revisit your policy anyway. You should do that every few years to make sure your policy fits your constantly changing insurance needs. That car you covered three years ago has depreciated. It may not be worth the price of collision insurance. And if $500 doesn't seem like the mountain of money it once was, raise your deductible to cut your premium as much as 30%. If you've moved to a rural location or drive much less than before, you can get a lower rate. You can also get discounts by bundling several cars on one policy or by earning good grades in school or by having a spotless driving record in the past three years. And, of course, if your teenager has moved out, your heart may hurt but your pocketbook will enjoy a lower insurance tab.

While reviewing your auto insurance, look at your homeowner's policy too. With housing values going up, you may need to increase your coverage. If your net worth has risen, you should consider raising the limit on your umbrella policy. For home or auto, the best way to shop for insurance is to look at your current policy and make sure it's right--then get quotes on identical coverage from three insurers. Now that you're part of the safe-driving crowd, there's no reason to get careless with your money.

See time.com/personal for more on insurance. E-mail Dan at kadlec@time.com See him on CNNfn Tuesdays at 12:45 p.m. E.T.