Maine Bureau of Insurance Superintendent Eric Cioppa has denied Progressive’s request to raise auto insurance rates for new customers above the age of 65.
Cioppa stated in the August 10 ruling that the move would have affected more than 65,000 Maine policyholders and violates a section of Maine’s insurance code meant to protect drivers from rate hikes based on age.
Maine is the oldest state in the U.S. by median age, with a median population age of nearly 44 compared to the U.S. average of about 38, according to a 2014 U.S. Census report. This has led some to question the reasoning behind Progressive’s appeal.
“If you’ve had a lot of loss from a particular group that you insure in an area where you have a large market share, you may seek to raise rates for that group. So that may be the reason behind the decision Progressive made,” explained Loretta Worters, vice president of communications for Insurance Information Institute, a New York based insurance trade group. “Companies can look at doing different things in that situation – pulling out of a market or reducing their amount of exposure – but they can’t arbitrarily raise rates.”
Progressive initially sought state approval for charging higher auto insurance premiums for existing older Maine customers, but that request was denied by the state’s bureau of insurance. The bureau then agreed to reopen the case to discuss Progressive’s appeal for raising premiums exclusively for new, older customers, which was ultimately denied in the latest ruling.
“When the issue resurfaced for the second time, we voiced our concerns around this age based approach,” said Lori Parham, state director of AARP Maine. “We believe driving is a function of ability and not age. By saying across the board when you turn 65, you can raise rates, that sets a dangerous precedent.”
In an emailed statement to Insurance Journal, Progressive spokesman Jeff Sibel explained that the company engaged with the Maine Bureau of Insurance in an effort to determine how to more accurately price customers in accordance with the laws of the state, adding that it took factors besides age into consideration.
“Progressive did not propose to raise the rates of Maine seniors based solely on age,” he said. He did not comment further.
Allison Feakins, head of analytics at Compare.com, a car insurance comparison website, explained that generally, insurance companies look at the probability that a driver is going to have an incident and the expected cost of that claim when deciding how to accurately price.
“The data they are looking at is slicing and dicing the probability of an issue with the cost by hundreds of different factors,” she said. “Age is one of them, but there are lots of other things – driving records, marital status, the type of car you drive and how many drivers – to figure out how likely they are to have to pay out after they sell a policy and how much they will have to pay out.”
To establish accurate rates, insurers look at past trends and changes in the current environment that may affect potential losses in the future, Worters said. If a particular age group in an area consists of higher risk drivers based on past data, an insurance company may need to charge more for that group, Feakins added.
“You have a lot of factors that are used to help determine what rates are, but I’ve never seen a situation where age has been a factor to this extent,” Worters stated.
The section of Maine’s insurance code that the Maine Bureau of Insurance said the appeal violates states that “no insurance company authorized to transact business in this state shall cancel, reduce liability limits, refuse to renew or increase the premium of any automobile insurance policy of any kind whatsoever for the sole reason that the person to whom such policy has been issued has reached a certain age.”
Feakins said this rule is an anomaly compared to national trends.
“The issue that we’re talking about with Maine is not actually the norm nationally,” she stated. “If you look at average premiums by age across all of the states, you’ll see that the issue at hand is very specific to Maine. Normally, anybody less than 25 years old has very high premiums. Those get lower until you are in your 60s, and then on average nationally, insurance premiums do increase.”
The national average yearly auto insurance premium is around $800, but there is wide variation around this average based on other factors, such as previous driving history, Worters explained.
“Approximately one-third of seniors rely on social security for income, which totals about $1,100 per month,” Worters said. “They have to make a lot of tough decisions about how they spend their money. At the end of the day, the cost of insurance is a pocket book issue.”
In his statement to Insurance Journal, Sibel said that while the company had the right to appeal the Superintendent’s latest ruling, it decided to abide by the decision and dismissed the administrative action two weeks ago, considering the matter terminated.
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