A new report issued by the Consumer Federation of America this week set off quite a kerfuffle among property and casualty insurance trade groups over its claim that rates for U.S. auto insurance are not so competitive and are weighted in favor of nondriving-related risk factors.
In the report released Monday, CFA analyzed the online auto quotes for 12 cities offered to two hypothetical 30-year-old women: a single receptionist with a high school education, no accidents and a 45-day lapse in insurance; and a married executive and homeowner with a master's degree and no lapse but an $800 at-fault accident in the past three years. Quotes were compared from the nation's five largest auto insurance companies: State Farm, Allstate, Geico, Farmers and Progressive.
CFA found that in two-thirds of the 60 cases studied, insurers quoted higher rates to the safe driver than to the one with an accident on her record. Why? The consumer federation concluded that all the insurers except State Farm used nondriving-related rating factors such as education and occupation in arriving at their quotes. That practice was deemed unfair by two-thirds of consumers surveyed in a CFA study last year.
Auto insurance uncompetitive? That's quite a leap, according to the Insurance Information Institute. The trade group was quick to point out that motorists have dozens of auto insurers clamoring for their business. The institute referenced 2009-2010 data from the National Association of Insurance Commissioners that found that U.S. motorists typically saw their annual auto insurance expenditures drop to $791.22 in 2010, more than 3 percent less than the average they were paying in 2006, as evidence of a robust, competitive auto insurance market.
Yes, insurers use a number of nondriving-related rating factors -- including age, gender, credit score, education and occupation -- when pricing policies, all reviewed and approved by state insurance commissioners. But the Insurance Information Institute also pointed out that motorists have a number of variables under their control -- including their type of vehicle and how much they drive it -- that also factor into their insurance cost.
Another trade group, the National Association of Mutual Insurance Companies, was less circumspect in its response to the CFA claims. Robert Detlefsen, NAMIC vice president of public policy, challenged the consumer federation's claim that nondriving-related rating factors are not predictive of risk. "CFA's entire critique is based on this one false assumption," he said.
What do you think? Are auto insurance rates rigged in favor of those best able to pay? Or are insurers justified in setting their rates based on factors that have nothing to do with your behavior behind the wheel?
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