AUTO RATES REV UP STATE'S DRIVERS PAYING 8 PERCENT MORE FOR INSURANCE THAN LAST YEAR.

Byline: Evan Pondel Staff Writer

Auto insurance rates have leaped sharply in California so far this year, wiping out nearly half the savings that motorists achieved during five years of rate reductions.

With rates up as much as 8 percent - and expected to continue rising - motorists are paying $778 million more for insurance. A series of reductions since 1996 had saved motorists around $1.8 billion.

Insurers blamed rate increases mainly on skyrocketing costs for auto repairs and medical treatment. The Insurance Information Network estimates Californians will pay an average of 8 percent more for auto insurance next year.

``The markets have hardened,'' said Pete Moraga, a spokesman for the Insurance Information Network in Los Angeles, said Tuesday. ``We've seen the biggest increase since 1997 in medical expenses, the cost to repair cars, along with a rise in jury awards.''

Critics accused insurers of profiteering at the expense of motorists to make up for losses in the investments as the economy has declined sharply.

``The insurance industry makes the most of their profits by investing the premiums we pay. When the investment drops, the insurer tries to compensate by increasing premiums,'' said consumer activist Harvey Rosenfield, who wrote a voter initiative some 13 years ago that overhauled California's auto insurance market.

``The auto insurance industry's arguments are baloney and designed to rationalize their own greedy desires to maintain their profit levels.''

Officials of Farmers Group Inc., a Los Angeles-based insurance company, cited a spike in the cost of claims as the impetus for its rate increase. They would not provide the amount.

The company said it experienced bigger increases in claims costs in 2000 than it's seen in the last four years.

``There just have been more accidents and more thefts in metropolitan areas,'' said Kenneth Adams, a spokesman for Farmers. ``When you have these factors it's going to translate to a higher cost for customers. And it's hard to say where we'll head in the future.''

Insurers have laid off large numbers of employees as part of cost reduction efforts in the face of reduced profitability.

The 21st Century Insurance Group is trimming about 5 percent of its work force, almost 130 employees, as the company attempts to retain its profitability. The cuts will be completed by the end of the month.

``The goal is to shift more of the company's resources away from administration and focus more on customer support,'' said Marty Cooper, a spokesman for the company.

The cuts come at a time when the company's quarterly results appear resilient to a sloping economy. In the third quarter the company saw net incomes of $2.7 million, or 3 cents a diluted share, compared with $2.6 million, or 3 cents a diluted share in the same period a year ago. Gross written premiums were $229 million for the period, compared with $226.3 in gross written premiums from the previous year.

Higher doctor bills also are becoming a greater drain.

In 2000, auto insurers spent $9.2 billion on California claims, a 17 percent increase from $7.9 billion the previous year, according to regulators.

The swing in auto insurance rates has arrived when household budgets already are being stretched by layoffs and lower incomes as the slumping economy sinks into a recession. The higher rates could prompt more drivers to drop coverage, adding to the estimated 5 million uninsured motorists already on California's roads.

Spurred by new state laws promoting traffic safety and favorable changes in the state's demographics, auto insurers dropped their California rates at a faster clip than anywhere else in the country during the 1990s, based on data compiled by industry regulators.

Collectively, California auto insurers dropped their prices by 12.8 percent, or $1.8 billion, in the five years ending in 2000, according to state regulators.