CFA Report on Auto Insurance Pricing is Flawed

CHICAGO - The following statement by the Property Casualty Insurers Association of America (PCI) is in response to the recent study by the Consumer Federation of America (CFA) regarding auto insurance rating. The following statement can be attributed to David Snyder, PCI’s vice president of policy, research and international.

“This is the latest in a long series of studies from the Consumer Federation of America based on flawed research and a fundamental misunderstanding of auto insurance underwriting and rating.

“Insurers use a wide variety of factors that have proven to be effective in predicting the likelihood of someone filing an insurance claim, how costly that claim may be, or having a loss.  By using a variety of rating factors, insurers are able to develop a more complete picture of a driver’s potential for filing a claim and in this way more accurately price the policy.

“The report itself demonstrates that mileage is often considered but, as one would expect in a competitive market, it is done so differently among insurers. Additionally, there are issues of validation and just using minimum coverage as the report does may not reflect the full range of differences of rates including mileage. In addition, it appears to ignore discount plans offered by some of the carriers, such as usage-based insurance programs, which monitor the way someone drives, where they drive and how often they drive. Those programs and other rate filings have documented that while vehicle mileage is relevant, how you drive and the conditions you drive under, such as congestion, are more important in predicting risk of loss.

“However, predicting future losses has actually gotten more accurate as a result of insurers’ use of additional data and factors. Consumers should be assured that auto insurance pricing is closely scrutinized by state insurance regulators and it is subject to rigorous actuarial standards which ensures that rating factors accurately measure risk and comply with the law.

“What the study does confirm is that consumers should seek quotes from several auto insurers since the market is highly competitive, and consumers have a large variety of choices.”

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PCI promotes and protects the viability of a competitive private insurance market for the benefit of consumers and insurers. PCI is composed of nearly 1,000 member companies, representing the broadest cross section of insurers of any national trade association. PCI members write more than $183 billion in annual premium, 35 percent of the nation's property casualty insurance. Member companies write 42 percent of the U.S. automobile insurance market, 27 percent of the homeowners market, 32 percent of the commercial property and liability market and 34 percent of the private workers compensation market.

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