Posted on 19 Feb 2009
Most Connecticut drivers would pay more for auto insurance – with some locations paying up to 5.3 percent more, on top of the additional 5.6 percent that they are already paying – if the Legislature enacts a bill (HB 6444) that places new limits on the use of geographic location as an underwriting and rating factor, according to a report issued today by the Property Casualty Insurers Association of America (PCI).
The paper notes that characteristics reflecting the geographical location of a driver’s residence are among the most effective variables for predicting auto insurance losses. Some of the characteristics contributing to the varying likelihood of loss among different areas are traffic density, health care and body shop repair costs, claiming behavior, attorney involvement, level of exposure to uninsured drivers, motor vehicle theft rates and fraud. In order to have equitable insurance premiums throughout a state, dissimilarities in the driving environment must be recognized. The price paid for insurance should correspond with the risk.
House Bill 6444 would change Connecticut’s current law which requires that 75 percent of the auto insurance rate for each territory be based on the territory’s own claims experience and the remaining 25 percent be based on statewide claims experience. Connecticut is the only state in the nation that requires insurance prices be set using such an arbitrary formula. The new formula would be a 50-50 split between each territory’s own claims experience and statewide claims experience.
“The net effect of HB 6444 would be to make insurance underwriting and rating less accurate and result in consumers in lower risk areas subsidizing consumers in higher risk areas,” said Paul Magaril regional manager and counsel for PCI. “Consumers that pose higher risk should pay more for insurance. This bill turns that notion on its head. The use of geographic location has been proven to be a highly accurate predictor of risk. By enacting legislation that eliminates or severely limits the use of this factor, the state is in the position of picking winners and losers regarding auto insurance. Based on this legislation, the majority of drivers in Connecticut would be losers. The big winners would be those who file the most claims and have the highest losses. That is not good public policy.”
According to the paper on average, 61 percent of insured drivers in the entire state would pay up to 5.3 percent more for their full coverage (liability and physical damage) rates. The overall impact of a 50-50 rule would mean rates for drivers in the highest risk areas would be 22.7 percent lower than what their true level of risk indicates. Conversely, rates for drivers in the lowest risk areas would be 11.2 percent higher than what their true of risk indicates.
The paper also provides analysis of the impact of this legislation on specific locations throughout the state. Hartford provides a stark example of the cost shift. Those living in Hartford County (excluding Hartford city and its suburbs and New Britain) would have to pay about 4.9 percent more to offset the extra 12.8 percent discounts given to the larger city/suburban motorists in their county.
PCI is urging the Connecticut Insurance and Real Estate Committee to reject HB 6444.
PCI is composed of more than 1,000 member companies, representing the broadest cross-section of insurers of any national trade association. PCI members write over $176 billion in annual premium, 35.9 percent of the nation’s property casualty insurance.