Why Banning Rating Factors Could Hurt Auto Even More

Auto insurance affordability is an important issue for consumers and the industry. Insurers take a wide variety of actions to make auto insurance as affordable as possible for consumers because they recognize that its cost can have a real impact on a family’s or individual’s wallet.

The best way to achieve affordability for consumers is to address the most significant expenses that drive up the cost of insurance, while encouraging and supporting competition and innovation.

Unfortunately, every year some lawmakers and regulators seek to address this problem by proposing to restrict or ban the use of certain factors that insurers use to fairly price policies. Often, the proposals are based on an all-too-common misconception that these factors are discriminatory and hurt low income and minority consumers. The simple fact is they do not.

Currently, Congress is considering H.R. 3693, which would prohibit auto insurance companies from basing rates on anything other than a person’s driving record.

For many Americans, driving records simply don’t tell the whole story. For example, speeding tickets and accidents can be expunged from a driver’s record by going to court, paying a fine, taking a course, or other methods that may not be feasible for every policyholder.

To fairly and accurately set their rates, insurers use a wide variety of information, including driving history and other factors that have been proven to predict the risk of loss, in order to provide a more complete picture of a driver’s potential for filing a claim or having a loss.

Since premiums are not based on one single factor, or group of similar factors, insurers are able to ensure that one small accident five years ago, or a speeding ticket does not have a monumental impact on the cost.

Ultimately, this results in consumers benefiting from lower rates, more choices and greater market stability. This is why nearly all state insurance departments across the country have approved the use of these factors. State insurance departments subject all rating factors to rigorous actuarial standards and have a full toolbox of regulatory powers that require rates to reflect risk.

In California, the Department of Insurance has proposed new regulations that would restrict affinity group auto insurance discount programs. These regulations would have the unintended consequence of taking away discount programs from drivers who are childcare workers, food technicians, electricians, music teachers and sanitation workers. These group discounts should be made available to more groups and occupations rather than denying discounts to millions of hard-working Californians.

When purchasing insurance coverage, consumers simply want a fair price that relates to the likelihood they will have an accident or file a claim. Eliminating the use of proven, reliable predictors of future loss would not lower consumers’ insurance costs.

Rather, it would likely have the opposite effect, causing millions of drivers to pay more for auto insurance. Preventing insurers from using factors that are predictive of risk of loss would result in less accurate pricing with higher risk drivers paying less and lower risk drivers paying more for insurance. This creates subsidies, when all drivers want to pay only for their own risk of loss.

Insurers want their products to be affordable and accessible to the largest possible number of people. The best way to make insurance more affordable is to help prevent crashes and injuries in the first place and insurers do that by advocating for highway safety. It is equally important to address congestion, fraud, the disrepair of roads, while tackling the high cost of litigation, medical expenses, and auto body repairs. These are the factors that truly impact affordability and drive up premiums.

Legislators, regulators, consumer advocates, and insurers should work together on meaningful solutions to keep auto insurance affordable. Restricting proven tools used to price risk has been proven not to be the answer.

Brewer is vice president of public affairs for the American Property Casualty Insurance Association. Email: Jeffrey.brewer@apci.org.