Best’s News & Research Service - February 08, 2016 04:08 PM (EST)
Group Urges State Regulators to Exclude Renter Status in Setting Auto Rates
WASHINGTON //BestWire// - The Consumer Federation of America urged state regulators to prohibit insurance companies from using homeownership status when setting automobile insurance rates after its survey showed drivers who rented were charged substantially higher rates than homeowners.
Companies surveyed charged good drivers rates that were as much as 47% higher for basic liability auto insurance if they rented rather than if they owned a home, according to the CFA analysis of rates in 10 metro areas across the country.
“The use of a renter penalty is immoral and should be stopped immediately,” said J. Robert Hunter, CFA’s insurance director and the former Texas Insurance Commissioner. “Rather than encourage safer driving, these factors seem rather intended to encourage buying homes and polishing our credit scores.”
The CFA sent letters to state insurance commissioners, asking them to emulate California, which prohibits auto insurance companies from considering whether drivers rent when setting premiums.
The survey looked at rates for seven major insurers in Baltimore; Chicago; Denver; Houston; Louisville, Kentucky; Newark, New Jersey; Phoenix; Portland, Oregon; Syracuse, New York; and Tampa, Florida. CFA found premiums averaged 7% higher — about $112 per year — for drivers who rent. The average rates were highest for Liberty Mutual, which charged renters the most in the survey with premiums averaging $307 per year, or 19% more, for state mandated minimum auto insurance coverage.
Attempts to reach Liberty Mutual for comment were unsuccessful.
However, the American Insurance Association warned evaluating premiums by looking at one set of factors misses the point because companies combine many different elements when setting their prices.
“Insurers use a variety of rating factors in pricing automobile insurance policies,” Rachel Jensen, AIA associate counsel, told Best’s News Service. “State regulators review rate filings and work to ensure that rates are not excessive, inadequate or unfairly discriminatory.”
Specifically, insurance companies must justify their rates before the state insurance commissions, James Lynch, chief actuary for the Insurance Information Institute, told Best’s News Service.
“Insurance companies can’t charge more because they feel they can charge more,” Lynch said. “It’s very tightly regulated and there is little wiggle room. Every aspect is subject to regulation.”
CFA last month criticized Illinois Acting Insurance Director Anne Melissa Dowling after her office declined to issue guidance on how to address the use of price optimization by insurers in setting premiums. Dowling’s office said it would not follow the pattern set by other jurisdictions in limiting or eliminating the use of price optimization because no specific definition of exists for price optimization (Best’s News Service, Jan. 7, 2016).
The top five writers of all private passenger auto insurance in the United States during 2014 were: State Farm Group, with a market share of 18.2%; Berkshire Hathaway Insurance Group, with 10.86%; Allstate Insurance Group, with 10.06%; Progressive Insurance Group, with 8.76%; and USAA Group, with 5.2%, according to BestLink.
(By Frank Klimko, Washington correspondent, BestWeek: frank.klimko@ambest.com)