Triple-I Weblog | Triple-I: Score-Issue Selection Drives Accuracy of Auto Insurance coverage Pricing


Lower-risk drivers should pay less for auto insurance, and premiums have closely followed general U.S. economic trends for decades, Triple-I told the Treasury Department’s Federal Insurance Office (FIO) this week.

In a letter in response to a state request for information, Triple-I said US auto insurers accurately price their policies based on a variety of valuation factors. All of these factors must comply with the laws and regulations of the state in which the auto insurance policies are sold.

“There is no credible evidence that insurers are charging more than they should, either in the broader market or in certain subsegments such as neighborhood, race, income, education or occupation,” the Triple-I stated. The letter also states that the valuation factors US auto insurers use to price their policies are not only used for their purpose, but are also constantly retested to ensure their accuracy and reliability.

“When rating factors do their job well, they make insurance relatively cheap for some people and quite expensive for others,” the letter said. “In both cases, the assessment is correct. Drivers who pose a lower risk pay less for coverage. “

The response to the FIO’s request for information made it clear that the reasonable price for an insurance policy varies widely from customer to customer and from state to state. Insurance is regulated by the state governments.

“Insurance companies and their actuaries have focused on finding factors that will ensure that every customer pays the appropriate tariff,” said the Triple-I. The rates are based on historical loss experience for similar risks. The premiums are the price that customers pay for insurance coverage.

Critics of US auto insurers’ pricing practices have raised concerns that certain valuation factors, such as credit-based insurance ratings and customer geographic location, discriminate against low-income drivers and minorities. Triple-I explained that eliminating a valuation factor, for whatever reason, will force those at lower risk to overpay for car insurance and allow those at higher risk to pay less for car insurance than they should.

Interventions can backfire

“The elimination of factors does not affect the truth they reveal, and if factors show that the cost to a customer must be high, their prohibition does not change the underlying costs that are causing the high rate” explained the Triple-I.

Regulators occasionally intervene in the rating process to make insurance more affordable for certain groups and point out the need to make insurance “affordable”.

“These interventions, however well-intentioned, can backfire in a spectacular way,” says the Triple-I letter, “increase overall costs and greatly reduce availability, as well as hinder innovations that could solve the problem. “

Real problems need real solutions

There are real solutions to make insurance more affordable, says Triple-I: “These solutions are not created by tinkering with how insurers set prices, but by looking at the costs that insurance pays.”

Solutions proposed include improving the transport environment and addressing societal problems that often force minorities and low and middle income people to live and drive in circumstances where car insurance costs the most.

Extensive triple-I studies show that rising claims costs were the main factor behind higher motor insurance rates.

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