The cost of auto insurance is expected to rise by 3.5 percent in 2004, the smallest increase in four years, reports the Insurance Information Institute.

“A reduction in auto accidents, combined with improved insurer financial performance, are contributing to a significant moderation in the cost of auto insurance in 2004,” said Robert Hartwig, the institute's senior vice president and chief economist. “Some drivers are even seeing rate decreases, especially those with the best driving records.”

The projected increase represents a substantial slowdown from 2003, when auto insurance costs rose by 7.8 percent, the III noted. The institute estimates the average cost for auto insurance nationwide for 2004 at $871, an increase of $29 per vehicle from last year, or about the cost of one tank of gas these days.

Better drivers and safer cars are contributing to a decline in the number of auto accidents, while crackdowns on fraud and abuse are proving effective in protecting insurers' financial interests, the analysis found. At the same time, however, rising costs for medical care, vehicle repairs, and skyrocketing jury awards remain problems, the III cautioned.

This year, insurers will pay between $15 and $20 billion in medical claims, according to Hartwig. Higher costs for hospitalization and pharmaceuticals, and state regulations that permit abuse of medical treatments and associated legal costs also are to blame. “Collectively, these high costs more than offset the decline in accident frequency, pushing overall rates upward,” he said.

Medical costs have played a significant role in the auto market, the III said. Each year, there are more than two million car accidents involving injuries. Typical costs for treating an auto accident victim range from $6,000 to $9,000, but can easily run into the tens of thousands of dollars.

Repair costs, which are rising at nearly double the overall rate of inflation, also influence premiums. “Unfortunately, while drivers today are filing fewer claims, those that are filed cost more,” Hartwig said. “It costs more to repair cars, particularly following accidents involving sport utility vehicles.”