A highly competitive auto insurance marketplace is making coverage more widely available and affordable for all drivers, according to the Insurance Information Institute (I.I.I.), even though insurance is also a heavily regulated industry.
The I.I.I. made the observations in response to a release issued today by the Consumer Federation of America (CFA), which asserted that insurance industry underwriting and rating practices were increasing auto insurance prices for drivers lacking either certain academic credentials or holding what is deemed to be a less responsible job.
“No matter their station in life, dozens of auto insurers are competing for the business of every driver who resides in the cities the CFA surveyed for its report,” stated Dr. Robert Hartwig, president of the I.I.I. and an economist. “These market forces have created a favorable situation for the nation’s drivers when considering what they’ve had to pay for other products and services essential to their daily lives.”
Rather than looking at price quotes, the National Association of Insurance Commissioners (NAIC) examined what the typical U.S. driver actually paid annually in auto insurance premiums, determining it was $786 in 2002 and $791 in 2010. The I.I.I. projects the per annum expenditure for auto insurance grew to $819 in 2012, only 4.2 percent more than that same driver paid in premiums to their auto insurer in 2002.
In contrast, the Consumer Price Index (CPI) for the 10 years concluding at year-end 2012 cumulatively grew at a rate of 27.6 percent, according to the U.S. Labor Department’s Bureau of Labor Statistics (BLS). Meanwhile, gasoline prices soared 168.5 percent and medical care costs rose 45.3 percent in the 10 years prior to year-end 2012, the BLS reported. Bodily injury (BI) expenses are a significant cost driver for auto insurers.
“The most effective ways to lower the price of auto insurance is to reduce the cost of medical care and auto repair while at the same time aggressively combating insurance fraud, which levies a hidden tax on drivers,” Dr. Hartwig said. “Changing underwriting and rating factors that have been shown to project an insurer’s future claims payouts accurately will only distort prices and result in good drivers subsidizing riskier ones.”
Auto insurance policyholders also have a degree of control over the price they pay for insurance coverage because the premium is determined in part by their driving record, the type of car they drive, and the type and amount of coverage they purchase, Dr. Hartwig explained. Moreover, state insurance regulators review and approve the rating criteria (e.g., a driver’s age, gender, and miles driven) auto insurers are allowed to employ when pricing a prospective or current policyholder’s policy.
“Car owners have a multitude of choices when it comes to buying coverage as well as a variety of ways to obtain it: through an agent, over the phone or online. Drivers should shop around if they feel as though their current auto insurer is not meeting their needs, or charging too high a price,” the I.I.I.’s president concluded.
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