Insurers are addressing the rising cost of auto insurance

The rising cost of auto insurance is becoming a problem across the US. Brett Hewitt, assistant vice president of federal government relations at APCIA, discussed how insurers are tackling this problem.

How are insurers addressing the rising costs of auto insurance?
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 recognise that these expenses represent real dollars coming from 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.

Why can’t insurers use driving records as the primary indicator to develop premiums?
For many Americans, driving records don’t tell the whole story. For example, speeding tickets and crashes can be expunged from a driver’s record by going to court, paying a fine, or other methods that may not be feasible for every policyholder.

To set their rates fairly and accurately, insurers use a wide variety of information, including driving history and other factors that have been proved 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 they have a fair and full picture of the risk for that policyholder.

Do state regulators approve insurers’ use of non-driving factors?
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.

Ultimately, based on this extensive oversight by states, it has been shown that the use of non-driving factors results in consumers benefiting from lower rates, more choices and greater market stability.

What would happen if a state banned non-driving factors?
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 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.