California, a bellwether state in many ways, rang in 2019 with a regulation banning the use of gender in auto insurance underwriting and rating. Prior to this regulation, insurers used gender in California for more than 30 years because it is predictive of future loss and insurance claims. Young male drivers typically drive faster than young female drivers, causing more losses, and insurers showed regulators the data to demonstrate this risk.
Nevertheless, as Insurance Commissioner Dave Jones left office, he issued the ban on gender, and since January, 12 other states have introduced or considered legislation that would restrict or ban a range of rating factors. So far this year, legislation to ban the use of gender has been considered in Connecticut, New Mexico, Texas and Virginia. Bans on the use of credit have been introduced in Connecticut, Indiana, Maryland, New Jersey, Oregon, Rhode Island and West Virginia. Despite having studied the use of education and occupation, Maryland and New Jersey are again considering legislative bans on these factors. The use of ZIP codes and geographic territories are under attack in Illinois and Maryland. Marital status as a rating factor is also being debated in Maryland, and nearly all non-driving factors are being scrutinized as part of the discussion around no-fault reform in Michigan.
Insurance is about matching risk with price so safer drivers do not subsidize riskier drivers. However, these bills would eliminate many tools used to price insurance accurately and ensure consumers get the best rates. They would have the unintended consequence of making it difficult for insurers to develop a more complete picture of a drivers’ risk or accurately price policies. The insurance industry has studied the data for years, and it shows many factors commonly used are more reflective of driver safety than one’s driving record. That is because driving records can be wiped of injurious car accidents and safety violations through the completion of easy driver safety courses. Drivers with the financial resources can hire an attorney and have items removed from their record. Rather than forcing insurers to solely rely on state motor vehicle records, which are plagued by omissions and unreported events, insurers should be able to continue using the variety of factors that accurately predict the likelihood of an accident or a claim.
When insurers use these tools to underwrite risks, consumers benefit with lower rates, more choices and greater market stability. This is why nearly all state insurance departments across the country have approved the use of the factors these bills would eliminate or restrict.
This is not the right time for regulators to limit choice and competition. Instead, the industry wants to work with lawmakers and commissioners to increase consumer options and lower costs. The way to make the insurance marketplace affordable and work better for all drivers is to encourage consumers to shop around for the policy that fits their specific needs and price range. We should work together to combat distracted driving and other safety hazards contributing to rising collision and fatality rates.
When purchasing insurance coverage, consumers simply want a fair price that relates to the likelihood they will have an accident or file a claim. The restrictions on risk-based insurance pricing being advanced across the country would unfairly create lower rates for some riskier drivers while increasing the rates for those with a record of safety.
This is the wrong direction for consumers and the insurance marketplace.
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