Auto Insurance

A post on Sam Friedman’s blog at National Underwriter has me thinking.  (Danger, Will Robinson!  Danger!).   I posted a response at NU, but I’m going to extend my thoughts here.

Sam writes:

One of the most important and interesting developments at the recent NAIC meeting came in under the radar and took most insurers by surprise–a controversial call to force homeowners carriers to collect and disclose data on the race, gender and income bracket of their prospects and clients. In responding, insurers are damned if they do and damned if they don’t support the proposal. [...]

Obviously, Mr. Squires is eager for insurers to collect and provide access to such data to see once and for all if insurers are actively engaging in redlining, or are passively doing so–via disparate impact (in other words, even if their intent is non-discriminatory, the end result comes out that way, unfairly disadvantaging one racial, gender or economic group).

Just as obviously, insurers don’t want to collect such data because, for one, it might very well expose them to lawsuits over their underwriting patterns–however neutrally they are applied–and it might annoy or provoke those asked to list their race, income, etc., on a homeowners insurance application.

Mr. Squires argues effectively that he is not reinventing the wheel here. Essentially, he says he is simply calling for the same data required of home mortgage lenders under the federal Home Mortgage Disclosure Act. He told the NAIC that HMDA and other fair-lending laws helped improve access to credit for low-income and minority markets, and suggested the same might be said of insurance down the road.

The short answer I posted in the responses section still applies — if the goal is to collect the same demographic information that is already captured by mortgage brokers, then analysts ought to simply collect both insurance and mortgage demographic data, and merge the two data sets, avoiding pestering consumers unnecessarily.

However, with some additional thought (dusting off older thoughts, actually), I can offer a few points that ought to be addressed in any proposal to analyze industry data for evidence of “redlining” or other forms of unfair discrimination:

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Insurance Journal has an article posted discussing Commissioner Burnes’ approving rate filings by Commerce and Safety over Attorney General Coakley’s protests.

Quoting IJ:

Burnes dismissed the AG’s entire analysis, ruling in favor of the insurers on each provision. Burnes suggested that while the AG’s approach might have worked under the previous fix-and-establish system, it was irrelevant under the new managed competition system and that the AG “fails to recognize” that the rules have changed.

Burnes said that while the attorney general wants to challenge individual provisions of rates, as was done under the previous system, a competitive system requires a broader view.[...]

“It is not my task to look at aggregate industrywide data for the purpose of developing an underwriting profits provision that reasonably reflects the average financial needs of a mythical ‘Every Company,’ but is specific to none.”[...]

“It is neither my role, nor the role of the Attorney General, to decide what expenses a company should incur in a competitive insurance market provided no such expenses violate the law. Companies that unwisely spend money will enjoy less success in the market, and this experience alone will alter future conduct,” Burnes wrote.

As someone who’s been grilled a few too many times in difficult rate filings, that’s good reading.

For details on what actually was approved, check out the article.

I realize that judicial practices and litigation customs are different in other countries…but sometimes you see something that, regardless of nationality, causes you to say, “Dude, that ain’t right!” From a wire service story:

Enaitz Iriondo, 17, died instantly in August 2004 when businessman Tomas Delgado’s Audi A8 crashed into him at 100 mph near Haro in northern Spain, an Interior Ministry traffic report said. The speed limit was 55 mph.

Iriondo was not wearing reflective clothing or a helmet, the ministry report said. As the sun had set when he crossed the path of Delgado’s car from a side road, a regional court found both parties at fault and closed the case, the report said.

Delgado, whose insurance company paid Iriondo’s parents $48,500 in compensation for their son’s life, filed a suit in late 2006 to recover $29,400 in damages to his car and car rental costs, the ministry traffic report said.

Again, realizing that such things are viewed differently outside the U.S., this is the sort of situation where, even if the person who lost his life was partially at fault, the survivor should be thanking his lucky stars that he wasn’t hurt, and that he’s not being sued for an amount far in excess of his liability insurance limits.

Insurance Journal has an initial summary of the first round of rate filings submitted for Massachusetts’ managed competition deregulation scheme:

According to rate filings submitted to the state by insurers on Nov. 19, from 70% to 80% of all drivers should see rate decreases beginning in April 2008 when the new managed competition system goes into effect. For the rest, rate hikes up to 10% are possible.

IJ summarizes the highlights of the top 10 carriers as follows:

The IJ article also includes highlights of what some of the new (to Massachusetts, anyway) discounts included in the filings are.

I haven’t seen anything yet about who will be seeing increases under the new algorithms, although those details will presumably be forthcoming.  Of course, all this could change somewhat in a week, as amendments to the filings are allowed after insurers have a chance to look over their competitors’ filings.

What really interests me is the possibility for some entertaining debate if/when consumer advocates start comparing the average decreases above with information from prior state-mandated rate changes

With the faint scent of the promise of future deregulation wafting through the Massachusetts personal auto insurance market, it seems that insurers are starting to prime the pump of policy bells and whistles, according to the Boston Globe:

Starting Jan. 1, Liberty will begin offering its 200,000 customers who have collision coverage better car replacement and rental car coverage. Currently, Liberty offers a Massachusetts customer whose new car is totaled or stolen the depreciated value of the vehicle minus the customer’s deductible.

The newly approved coverage matches what Liberty offers in most other states - full replacement value minus any deductible for a new car that’s stolen or totaled. The difference between the old and new coverage could be hundreds of dollars depending on the vehicle. Liberty defines a new car as one that is less than a year old and has less than 15,000 miles on the odometer. For an older car, Liberty offers depreciated value of the vehicle minus the deductible.[...]

For its part, MetLife has already added, at no extra charge, an identity theft resolution service to the policies of its 200,000 Massachusetts customers. The service directs customers who suspect something amiss with their credit to a company called Identity Theft 911, which will help them deal with the problem.

This should be a very early hint of some of the changes that could be coming to Massachusetts if the Commissioner has the political strength to see deregulation through. Mass Auto might start to resemble auto insurance in the rest of the country, as unthinkable as though that might have seemed a year or two ago.

It’s still probably too early to see any of the absent national writers enter the Massachusetts market. However, if deregulation pans out…maybe in a year or two.

(Disclaimer: I don’t work for one of those absent carriers. That’s just speculation on my part.)

USA Today is carrying an article today highlighting Measure 42 in Oregon.

On Nov. 7, Oregonians will become the first voters in the USA to decide whether to bar insurers from setting premiums based on such factors as credit history, debt load and bill-paying habits.

The insurance industry, which opposes the measure, is pumping millions of dollars into an ad campaign to defeat it. The outcome will be closely watched by other states that could come under pressure to take similar steps if the Oregon ballot measure succeeds.

That sets the general tone of the article, which seems decidedly biased in favor of Measure 42.

There’s two passages in particular that merit comment:

The industry argues that eliminating credit-based scoring would likely mean that people with good credit would end up paying higher insurance rates. But [Consumers Union attorney] Garcia notes that in California, insurance rates have dropped since the use of credit scores was banned.

The thing is…credit scoring has never been permitted in California auto insurance rates, under Prop 103. Recent rate drops have been more a result of regulatory prodding to get the industry to recognize recent trends and reduce rates despite their reluctance to do so in a challenging regulatory environment.

Insurers also argue that people with low credit scores are likelier to file insurance claims. “People who manage their finances well tend to also manage other important aspects of their lives responsibly, such as driving a car,” the Insurance Information Institute says.

Consumers Union says there’s no proof of that. A review of how credit scores are used to set rates in Texas found that the scores have more to do with economic status than with personal responsibility, says Birny Birnbaum, a former Texas insurance regulator who is executive director of the Center for Economic Justice, a consumer advocacy group.

The correlation between scoring and future losses has been demonstrated in hundreds of rate filings around the country and several published studies, including this one commissioned by the Texas Department of Insurance and performed by the University of Texas.