Cheaper car insurance ahead.

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Author: Richardson, Vanessa

Lately, many drivers have experienced a rare phenomenon: lower auto insurance rates for the first time in more than 20 years. The good news is that insurance company generosity should stay in gear this year. Total premiums, which currently average $700 a year nationwide, could fall by at least another 2%.

Why this windfall? More careful driving by aging baby boomers, improved car-safety features and milder weather in much of the country, thanks to El Nino, have meant fewer liability claims and heftier profits for insurers. Faced with fierce industry competition, insurers are sharing some of that wealth with their policyholders.

State Farm, which insures one out of every four cars in the U.S., kicked things off last November by lowering rates in 33 states and raising them in only 11. Throughout the country, the overall reduction was 2%, but drivers in California and Illinois saw a 5% decrease. Then in January, USAA, the fifth largest insurer, continued the trend by reducing premiums for all of its 3 million policyholders by as much as 25% and announcing that they would cut rates further during the year.

Where does that leave customers of other insurers? In the driver's seat, so to speak. Other large carriers, including Geico and Nationwide, are expected to trim rates as well. "Since State Farm sets the pace in the industry, most of the more than 300 auto insurers mimic its moves," says Eric Simpson, a senior vice president of the property-casualty division at A.M. Best, a firm that analyzes insurance companies.

At the least, most drivers' rates won't be going up anytime soon. "For the next three to five years, rates will stay flat or go down," adds Simpson. If you don't see an automatic reduction, call your state insurance department for a free guide ranking insurers in your state and shop around.

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By Vanessa Richardson