Prior Approval of Auto Rates Does Not Benefit Consumers: Study

August 21, 2013

  • August 21, 2013 at 2:00 pm
    jw says:
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    I can’t believe I’m going to say this, but it’s not about the effect having to get approval has on rates. It’s about political position and getting to say “we’re looking out for your best interests.” Can you imagine the consumer backlash if states quit “approving” rate filings? Now that would be ugly.

  • August 21, 2013 at 3:08 pm
    Rusty says:
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    Not so sure anyone would notice except maybe consumerists who, despite all the evidence to the contrary, would still insist that prior approvel is in the consumer’s best interst. We’ve already seen how competition affects automobile rates for the better, so why do we need state regulators to arbitrate what is right and fair? It only politicizes the costs and such a system often cannot react quick enough to changing circumstances.

    • August 21, 2013 at 4:11 pm
      tom murphy says:
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      You must be a company person.

  • August 21, 2013 at 4:07 pm
    tom murphy says:
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    Hidden due to low comment rating. Click here to see.

    • August 21, 2013 at 7:08 pm
      KentU says:
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      I have a number of customers in my 34 years as an agent that have been convicted of insurance fraud – auto & home. The first clue that started an investigation after their claims was their credit scores were so low that it was believed they may be using their insurance policy for a source of income. One was a cop that had his car stolen to collect the insurance proceeds – he had a gambling problem. The rent car company had to get Internal Affairs to get their car. Also think of the number of customers with bad credit that did commit insurance fraud but, just didn’t get caught. I should add that these claims were high dollar pay outs. A person with bad credit does statistically have an actuarial probability of larger and more frequent claim payouts – fact!

    • August 22, 2013 at 9:58 am
      Roland says:
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      “…the companies are in it to make a profit.”
      Look around, Tom. All of the good things in the physical world that make your life better every minute of every day were brought to you by entrepreneurs who were “in it to make a profit.”
      Government, on the other hand, gives us nothing but squandered resources, war, poverty, misery and death. Markets are not perfect, because they are run by imperfect humans. But when you elect a handful of those imperfect humans and give them a monopoly on the use of force, you only make things worse – much worse.

    • August 22, 2013 at 10:39 am
      Ron says:
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      Tom,

      Anyone who understands ratemaking will tell you that your credit does not indicate whether or not you are a good driver. But is has been staistically proven that those with a poor credit scores have higher loss costs and that is what drives the rate. I can assure that most actuaries do not look at claim frequency nearly has much as they do loss costs. Product managers are the ones concerned about frequency.

      If profit is the goal of a company and credit is not a good indicator, why do nearly all companies use it in some capacity?

  • August 21, 2013 at 6:52 pm
    KentU says:
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    Pre-approved rate regulation results in carriers being hesitant about lowering rates on their own to gain market share. Carriers are afraid if they lower rates too much that it will become more difficult to raise rates when needed if it requires pre-approval.

  • August 22, 2013 at 9:28 am
    Roland says:
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    What a testament to economic ignorance that this is considered a significant discovery. Markets work; central planning doesn’t. Long ago, Americans were smart enough to know that.

  • August 22, 2013 at 9:46 am
    youngin' says:
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    Prior approval should only be necessary if the market is dominated by a couple of players and there are structural barriers for additional companies to enter the market and compete. Insurance isn’t like that – all it really takes to write insurance is capital and a little infrastructure. The conclusions of this, um, poll of mostly academic “experts” is not surprising because economic theory suggests that prices in a highly competitive market will be . . . about as low as they can be – and no single company can make “excessive” profits for a sustained period of time. Regulators should focus on making it easier for companies to do business, not harder.

    But, most regulators already realize this. As the article says, the decades-long trend has been away from prior approval.

    • August 23, 2013 at 8:03 am
      Roland says:
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      “Insurance isn’t like that – all it really takes to write insurance is capital and a little infrastructure.”
      …and a license from the government.
      Youngin’, you are correct about a “highly competitive market” resulting in the lowest possible prices. However, I’m afraid you don’t give economic freedom enough credit when it comes to generating the lowest possible price in all situations. A free market will not allow a monopoly. Monopolies exist only when they are created by the state through force. The force is most obvious when it takes the form of licensing, but other regulations can serve to keep new sellers out of the market as well.
      The only way one company can have a monopoly in a truly free market is if it provides flawless service at the absolutely lowest price day in and day out. And if that’s the case, what’s the problem for consumers? The minute that company tries to “gouge” consumers or the quality of its product slips, another entrepreneur in search of profit will swoop in and – poof! – the monopoly is vaporized.
      We do not need government regulators to make it easier for companies to do business. Tell them to take a hike! Introducing politics into the market only guarantees that prices will be higher and service will be worse, as politically-connected companies manipulate the rules to keep others out.

  • August 22, 2013 at 1:52 pm
    phoenix says:
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    I’m not aware of any countries in the EU which require rate approval, and they require minimum Liability limits equal to $7.5MM/$1.5MM/$1.5MM. Many countries require Unlimited bodily injury limits. Yet, you can purchase these limits at a fraction of the cost of what the woefully inadequate mimimum limit premiums are in many of the the U.S states. True, the court awards are a bit more level-headed, but it is evident that letting competition do it’s work benefits the consumer most. Hard to believe that Europe is leading the way in this regard!

    • August 22, 2013 at 5:28 pm
      Not so hard to believe, Phoenix says:
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      Countries in the EU probably do a lot of things better, they just don’t wave their flag about it like us arrogant Americans.

  • August 22, 2013 at 3:36 pm
    Libby says:
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    I believe the issue here is prior approval versus file and use states. Some states require approval prior to using and others allow the file and use system where they are approved after they are used. I guess they’re saying rates are not any better in those states with prior approval than they are in file and use states for all the reasons stated above (competition, etc.)



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