NAMIC raises concerns over proposed auto insurance legislation

Misguided legislation affecting state insurance regulation and limiting underwriting by banning actuarially-sound rating factors will lead to increased rates for most consumers, according to the National Association of Mutual Insurance Companies (NAMIC).

“The use of rating factors is approved by state regulators for a very simple reason – they have been actuarially proven to correlate with the risk a potential policy presents,” stated Jimi Grande, senior vice president of federal and political affairs for NAMIC. “Numerous studies by the federal government, state regulators, and academic institutions have examined this issue and reached the same conclusion. When predictive factors are taken away, rating becomes less accurate, and safer drivers are forced to subsidize coverage for riskier drivers.”

The Prohibit Auto Insurance Discrimination Act was reintroduced in the House of Representatives on May 29 by Reps. Bonnie Watson Coleman, D-N.J., Rashida Tlaib, D-Mich., and Mark Takano, D-Calif. The bill aims to prevent insurers from accurately matching risk to rate through a broad federal prohibition on using various proven driving risk factors such as gender, credit-based insurance scores, and geographic location. This would limit an auto insurer’s ability to accurately assess and price risk when underwriting policies.

Independent studies have shown that non-driving factors help insurers more accurately assess risk while offering rates that are actuarially sound. No single factor can measure the totality of risk represented by an individual consumer. More risk-based factors provide consumers with more choices in insurance products rather than a uniform product at a higher price.

“Risk-based pricing is what enables insurers to offer competitive rates and levels of coverage while remaining financially stable,” Grande added. “Every state and territory has laws and regulations governing the use of non-driving factors, but the PAID Act would have the federal government force insurers to pretend that all drivers represent the same level of risk, making riskier drivers harder to identify and increasing rates for everyone.”