Paying more at the gas pump could lead to lower auto insurance costs

With gas prices on the rise in 2011, many consumers are finding themselves changing their driving habits to cut back on mileage. Such a change could be rewarding, as it not only would reduce trips to the pump, but it could translate into lower auto insurance costs, experts say.

“As gas prices go up, people tend to drive less,” says Jack Gillis, a spokesman for the Consumer Federation of America. In fact, a study released in March 2011 by the American Public Transportation Association predicted $4-a-gallon gas would lead to 670 million more passenger trips on buses, trains and other modes of mass transportation.

That bus or train ride could save you money in the long run, Gillis says. “It’s important that consumers report their driving behavior to their insurance company,” he says, “because many insurance companies use annual miles driven as a criteria on how much to charge you.”

Pain at the pump actually could translate into lower auto insurance rates for some drivers.

In 2006, the Consumer Federation of America issued a report that found that drivers could save 5 percent to 10 percent on auto insurance based on how much they had cut back on their driving. At the time that the study was released, gas prices averaged $2.20 a gallon, up 41 cents over the year before. In mid-March 2011, average U.S. gas prices were $3.55, up from $2.79 a year earlier. The findings of the 2006 analysis definitely apply now, Gillis says, as people once again are seeking ways to drive less.

Mimi James, a boutique owner in Red Bank, N.J., says the gas prices have her thinking twice before heading out in her car and contemplating other modes of transportation. “I am keeping my two gas-guzzling SUVs garage-bound,” James says.

Money-saving behavior

A number of behavioral adjustments such as those made by James can affect your auto insurance rates, according to the Consumer Federation of America study:

• If you’ve stopped driving to work in favor of mass transportation or telecommuting, your car may qualify as a “pleasure” vehicle, which could translate into a lower auto insurance rate.

• If you drastically reduce the amount of miles you commute, such as through carpooling, you may cut down enough on the annual number of miles driven to earn a lower rate.

• If you cut back your mileage in other ways, such as consolidating trips and walking more, you may be averaging fewer miles a week, which again would decrease the number of miles driven a year. A relatively minor cutback could result in big savings, according to the Consumer Federation of America, pointing out that a consumer who decreased driving from 200 miles to 175 miles a week would wind up going from 10,400 to 9,100 miles a year. If an insurer uses the 10,000-mile mark to set rates, that 25 miles a week could make a difference.

The extent to which a change in driving habits would affect your premium varies from situation to situation, says Dick Luedke, a spokesman at State Farm. “But it certainly does make sense for a person who changes the manner in which he or she commutes to and from work to check with his or her agent to see if a premium reduction is in order,” Luedke says.

If high gas prices have prompted you to drive less, you may want to check with your auto insurance company about whether the lower mileage could lead to lower premiums.

If you’re not sure how many miles you spend on the road, track your mileage for a couple of weeks so you have data to give to your auto insurance company.

While many analysts are making guesses about how high gas prices will soar, “no one can accurately predict the price of gasoline several months in the future because many factors influence oil and gasoline prices,” says Troy Green, a spokesman for AAA.

However, if history is an indicator, prices may stay high throughout the summer. “Gasoline prices tend to rise in the spring and summer months due to increased demand and a switchover from winter blends of gasoline to cleaner-burning summer blends,” Green says.

Fewer miles, fewer accidents

Rising gas prices also could affect auto insurance rates in another way, depending on how long the pump prices remain high. The Consumer Federation of America notes that in the past, gas price spikes have contributed to fewer auto insurance claims, largely because motorists have responded to the price hikes by driving less. As a result, there tend to be fewer accidents when gas prices are high.

While auto insurance rates don’t change immediately when the number of claims drops, a sustained period when claims are significantly lower could translate into lower insurance premiums, according to Jerry Davies, assistant vice president at Farmers Insurance.

However, insurance experts are quick to point out that other factors affect auto insurance premiums, such as your driving record and credit score.

Another factor that helps determine insurance rates is the type of vehicle being insured. Gas prices often play a role in consumers’ buying decisions, says Gillis, the Consumer Federation of America spokesman.

“A lot of people will probably be moving into more fuel-efficient vehicles if these prices stay up,” Gillis says. “As you do that, make sure you pre-shop your insurance costs as well, since relatively similar cars may have substantially different insurance rates.”

–Tamara E. Holmes