Hawai'i's auto insurers have dropped their rates as profits have climbed.

During the past several months, the state Insurance Division has approved rate reductions for four major carriers, said Insurance Commissioner J.P. Schmidt.

The reductions range from 1 percent to 5 percent for the state's largest carriers to 8 percent to 15 percent for smaller insurers.

The decline was made possible by a drop in the number of traffic accidents and claims.

"Insurance companies are in pretty good financial position and they've had fairly good profits from the prior years," Schmidt said.

"When that happens insurers start looking to expand their market share or maintain the good customers they have ... by dropping premiums."

State Farm Insurance Co., the state's second-largest auto insurer with about 129,000 policy holders, said it reduced rates for all of its customers by an average 5.1 percent in May.

Geico Insurance Co., the state's largest carrier, said it recently lowered rates for its 167,000 Hawai'i customers by an average of 1 percent.

Progressive Insurance Co. dropped its rates by 3 percent beginning in April for all of its 38,000 local customers.

The company will reduce rates another 5 percent on July 31 for online and phone-in customers while the majority of Progressive's local customers, who buy their coverage through independent agents, will get a rate cut later this year, said company spokeswoman Leslie Kolleda.

This month, Island Insurance Co. lowered rates by about 15 percent for 2,100 of its 36,000 local customers, said company President John Schapperle. The rate cut is for customers who have standard auto coverage, he said.

Sand Island resident James Hunter said he's seen rates come down recently and welcomes the competition between insurers.

Hunter, a sales consultant for a local car dealership, said he received a number of competitive quotes but has remained with his longtime insurer, Allstate Insurance Co., because he's satisfied with its service and products.

"It seems that rates have been pretty reasonable in recent years," Hunter said.

FROM 2ND TO 22ND

Today's rate environment is a welcome relief from the mid-1990s, when Hawai'i had the second-highest rates in the nation behind New Jersey.

But with the legislative reforms of the state's no-fault insurance law in 1996 and 1997, insurers' costs dropped, sending premiums tumbling.

Hawai'i is now the 22nd costliest state for auto insurance, with drivers paying an average of about $817 a year, according to statistics compiled by the National Association of Insurance Commissioners.

"The market has changed dramatically over the years and is in large part stable today," said Alison Powers, executive director of the Hawaii Insurers Council, which represents most of the major local auto insurers.

Carolyn Fujioka, spokeswoman for State Farm, said the number of traffic accidents and the amounts paid out in claims have gone down in recent years, allowing companies to pass on cost savings to consumers.

Fujioka noted that State Farm's most recent rate cut, which translates into an average savings of about $40 per driver, came after the company lowered rates by 5 percent last October and another 5.9 percent in October 2005.

Since the early 1990s, the company's rates have dropped 38.1 percent, she said.

RATE DROP SLUGGISH

At least one insurance expert doesn't think Hawai'i prices are falling fast enough.

Birny Birnbaum, a Texas-based insurance economist and a former regulator for that state, said Hawai'i insurers have enjoyed huge profits over the years.

Of the $636 million in auto insurance premiums collected in 2005, Hawai'i carriers paid out about $306 million, or about 48.2 percent.

He noted that insurers are profitable when claims represent 65 percent to 70 percent of the premiums collected.

Statistics compiled by the NAIC show that the local industry's return on net worth — a measure of overall profitability — climbed from 10.3 percent in 2002 to 19.6 percent in 2005. A 10 percent to 15 percent return is generally considered healthy.

"They're getting a tremendous profit margin," Birnbaum said.

That sentiment is shared by Kailua resident Tom Rack. The local attorney said the cost to cover his family's three cars has risen every year to more than $2,000 a year.

"Every time I get a new notice, my premium keeps going up" despite having a good driving record, Rack said.

Powers, of the Hawaii Insurers Council, said the industry's profits have not been excessive and noted that all insurance rates have been reviewed and approved by the state Insurance Division.

She noted that local insurers have voluntarily reduced their rates as their costs have dropped.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.