Drivers in New York will see a lower average rate increase than what insurers initially sought, thanks to a directive issued by the state's insurance department requiring companies to consider reduced driving due to soaring gasoline prices.

New York Gov. David A. Paterson announced in a statement that auto insurance rates will increase by an average of less than 1 percent.

The governor said this is in comparison to an average requested increase of 8 percent from regulated auto insurers before the department issued its directive. In terms of dollars, Mr. Paterson said drivers will pay "almost $515 million less than what auto insurance companies were originally seeking to charge."

As reported previously by NU Online, on August 6 the department issued a Circular Letter instructing companies with pending rate requests to submit an assessment of the impact on rates and rate requests of reduced driving before the department approves any rate filings.

In explaining the directive, the department cited U.S. Department of Transportation data that showed New Yorkers drove 4 percent less in May 2008 than May 2007, a reduction of 500 million vehicle-miles, which would be associated with between $120 million and $420 million in annual costs.

Insurance Superintendent Eric Dinallo said at the time, "We are not making a prejudgment, but we do expect insurance companies to explain the rate impact of higher gas prices and the resulting dramatic reduction in driving we are seeing in the latest federal statistics. We will take that into account as we evaluate rate increase requests."

As a result of the department's directive, many of the 43 rate filings pending on August 6 withdrew or reduced their filed increases, according to the governor's statement yesterday.

Department spokesman Andy Mais said so far companies affiliated with GEICO, Progressive and Allstate either withdrew or reduced their proposed rate increases. Those companies represent 49 percent of the New York market, Mr. Mais said.

He added, "Some other companies have had their filings disapproved, and then there are some smaller tier carriers that are being processed right now. But absent any significant loss deterioration at any individual company, we don't anticipate approving rate increases."

The Property Casualty Insurers Association of America (PCI) took issue with Mr. Dinallo's August directive.

Paul Magaril, PCI's regional manager and counsel, said in August, "While there is solid evidence that the high price of gas has reduced the number of miles driven, it would be a mistake to assume that this means there will be lower insurance claims reporting and as a result, lower insurance premiums for consumers."

He said other factors need to be considered, and while there are fewer claims reflecting vehicle damage, the costs involved in repairing vehicles has increased.

In his recent statement, Gov. Paterson said, "It's simply counterintuitive to increase rates by 8 percent when people are driving less. Because of higher gas prices, New Yorkers are driving less and having fewer accidents as a result."

Gov. Paterson noted that New York's auto insurance rates are already the third highest in the nation, and said "if the original requests for rate increases had been approved, it would have cost New Yorkers more than $600 million."