By late 2001, the cost of doing business for auto insurers was $1.10 for every dollar earned on premiums. It took years to recover to today's ratio of 96¢ cents on every dollar earned.
The damage inflicted during the last price battle may deter the industry from an all-out war this go around. "They are not going to give up margins for the sake of adding a few points on their market share," said Mr. Hartwig.
And maybe they don't have to. Underwriting, after all, isn't the blind alley it used to be. The "segmentation" trend within the industry, including the new latest tool of using credit scores to determine risk, means insurers divide and subdivide drivers into more and more discrete groups, matching price with risk more accurately than ever.
"When there is rate competition and a soft market, no one wins," said Tony Diodato, VP-analyst in the property casualty division of A.M. Best, an insurance rating service that's seeing rate decreases from most of the top players. "Today we look skeptically at the impact of rate decreases because of the growing sophistication of the market," he said. "The refinement of the underwriting process should avoid the downturns of a few years ago."