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Doug Heller

The Consumer Federation of America released a new report earlier this week assessing consumer views on the factors insurance companies use to set premiums around the country.  Not surprisingly, Americans think that insurance rates should be based primarily on motorists' driving safety record (87% and 85% of respondents believe rates should reflect a driver's number of accidents and tickets, respectively).

More than a majority of Americans think it's unfair to consider the ZIP-code in which you live or your occupation.  More than two-thirds (68%) call it unfair to charge drivers more if they did not have insurance because they did not previously have a car.  This data point should interest Californians, because there's an initiative on the November ballot  - Proposition 33 - that would allow insurance companies to penalize people based on this precise factor that 68% of Americans consider unfair.

Proposition 33 was put on the ballot by Mercury Insurance's billionaire Chairman, and his $8 million campaign conveniently ignores the fact that the initiative allows insurance companies to raise prices on drivers who didn't previously have insurance because they didn't have a car. No doubt, his pollsters are telling him the same thing that the national survey reports: Americans don't think his scheme is fair.  (So if people think your initiative is unfair, your only option is to run a deceptive ad campaign filled with disingenuous patriotism and hope people can't see the trick you've hidden behind that flag.)

But back to today's report for a moment. Another interesting thing Consumer Federation did was look at rates around the country and show the effect of a variety of rating factors, including prior insurance coverage.  Two things stand out:

  1. Where most companies in most states dramatically jack up the rates on customers who do not have prior insurance when they want to buy a policy, Californians' premiums are unaffected by that factor because it is illegal to apply it in California.  The whole point of Prop 33 is to make California more like these other states in a bad way.
  2. Generally speaking, rates in Los Angeles, California are both lower than the other big cities tested and more stable after testing for factors considered unfair, such as ZIP Code, occupation, prior insurance and credit scoring.  In other words, the insurance reforms Californians installed through Proposition 103 in 1988 not only apply standards of fairness to the marketplace, they have created a competitive and lower priced market as well.

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Posted by Doug Heller, Executive Director of Consumer Watchdog, a nonpartisan, nonprofit organization dedicated to providing an effective voice for taxpayers and consumers in an era when special interests dominate public discourse, government and politics. Visit us on Facebook and Twitter.

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Comment Preferences

  •  Speaking as an Actuary (1+ / 0-)
    Recommended by:
    Dr Erich Bloodaxe RN

    I'll base my rates on whatever predicts claim costs, unless it is not legal to do so.

    I assume that there is some evidence that people owning a car (and therefore buying insurance) for the first time are more likely to get into accidents than long-term car owners.

    If you make it illegal for insurance companies to use this as a rating variable, they will spread the risk and rates for long term car owners will be higher than they would need to be to cover their claims, and rates for the new car owners would be lower.

    I'm not sure why allowing or disallowing this is an important public policy issue, and I'm really not sure why this insurance CEO thinks his company will do better in a market where all companies can use this as a rating variable, than in a market where its use is prohibited.  As far as I'm concerned, all I want is a level playing field, where the regulations make sense and are enforced equally across companies.

    Numbers are like people . . . Torture them enough and they'll tell you anything.

    by Actuary4Change on Thu Sep 27, 2012 at 01:43:58 PM PDT

    •  I agree (0+ / 0-)

      I think as long as you can prove that the numbers coorelate to reality, and you aren't discriminating against a protected class of people (minorities, gay, elderly, etc) you should be okay.

      I live in California and there are at least 50 auto insurers in the state. I am not sure why regulating auto insurance rates where there is tons of competition makes sense when things like Gas and other things with almost no competition are not.

    •  Good answer. (0+ / 0-)

      Base rates on the numbers, not on what people 'like' or 'dislike', or what gives a 'better profit margin'.

    •  And yet (0+ / 0-)

      one could own a car for the first time after driving every day for 20 years. Surely you can understand why such a person would feel pissed at paying a higher rate.

      Maybe people in a particular profession have more accidents because they tend to work longer hours and get less sleep, or talk more on the phone while driving, or have higher rates of alcoholism for some reason. The actuary doesn't care if this is fair as long as it "works", but it doesn't make much sense to the person who sleeps 8 hours a night, doesn't drink and doesn't have a cell phone, but has to pay more because of what he does for a living.

      I had an occupational discount that I lost when I lost my job, and my rates went up. I was NOT more of a risk than I had been the day before. In fact, my risk was cut in half because I'm now driving half as much. Other than that, all my driving habits are exactly the same as they always were. The average risk of people in my line of work is not the same thing as my risk.

      We decided to move the center farther to the right by starting the whole debate from a far-right position to begin with. - Former House Majority Leader Tom DeLay

      by denise b on Thu Sep 27, 2012 at 08:35:15 PM PDT

      [ Parent ]

      •  But your insurer has to base rates on averages. (0+ / 0-)

        All insurance is based on averages.

        I'm not an expert in auto insurance, so I don't have any expert insight into what occupations get discounts and why.

        I know that my insurance rates went down when I changed jobs and drove less, so shopping around might help.

        Numbers are like people . . . Torture them enough and they'll tell you anything.

        by Actuary4Change on Sun Sep 30, 2012 at 03:32:19 PM PDT

        [ Parent ]

  •  Another reason I quit driving. (0+ / 0-)

    Just because I'm poor it does not mean I'm a bad driver. Why should I have to pay more than some ass in a Lamborghini that can't keep their foot off the floor?

    Education is a progressive discovery of our own ignorance.

    by Horace Boothroyd III on Thu Sep 27, 2012 at 02:03:17 PM PDT

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