Industry Reacts Strongly Against CFA’s Auto Insurance Rate Study

The insurance industry came out against a recent national study by the Consumer Federation of America (CFA). In a nutshell, the study examined automobile insurance regulation over the last two decades and stated that rates have risen more slowly in the fifteen states that require insurers to receive advance approval of rate increases from the state. States with “prior approval” regulation also performed well in spurring competition and generating significant profits for insurers, according to the study. 
 
The top-performing state in keeping rates down and providing comprehensive consumer protections was California, the study revealed. Among the worst-performing states were those with weak or no regulation of rates at all. These states had the steepest rate increases, less competitive markets and among the highest profits for insurers. 
 
Here's what the insurance industry had to say in response to the CFA's findings: 
 
PCI 
 
"The CFA report misses the critical point that the most significant factor in determining auto insurance premiums is the cost of paying for injuries and damage resulting from accidents," wrote David Sampson, CEO and president of the Property Casualty Insurers Association of America (PCI). And he goes on to say: 
 
"The goal of a regulatory system should be to foster competitive insurance markets, spur innovation among companies, monitor market conditions and insurer solvency. 
 
"Opponents of competition-based rating such as CFA have the misguided impression that a prior approval system keeps insurance rates down. Ultimately price controls reduce the number of insurers doing business in a state, reduce consumer choice, and restrict market innovations. In states with price controls rates are more subject to political manipulation with adverse consequences – higher prices and fewer choices – for consumers. 
 
"Experience has shown that a competitive market is more responsive to the demands of almost every consumer. Competition forces insurers to eliminate inefficiencies and stimulates companies' efforts to attract and retain customers, offering innovative products that provide greater value to consumers. 
 
"In California, insurers have been able to function despite Proposition 103. But consumers would be better off without the regulatory constraints contained in the proposition." 
 
"For instance, those restraints prohibit insurers from reacting quickly to market changes, which in turn slows the process significantly when rates need to be lowered to reflect reduced accident costs. It often takes months and months for insurers to gain approval of rate changes. 
 
"California auto rates have increased at a slower rate than other states, not because of the regulatory constraints of Proposition 103, but because the California Legislature, insurers, auto manufacturers and courts have taken strong action to hold down the cost of accidents, injuries and litigation." 
 
AIA 
 
Debra Ballen, Executive Vice President for Public Policy Management at the American Insurance Association (AIA), reponded to the study, saying: 
 
"As predicted, Bob Hunter and the CFA have once again pulled out the same worn and tiresome arguments suggesting that somehow increased regulation of auto insurance is better for consumers. 
 
“The results of the CFA’s work lack credibility and fly in the face of what we know for all goods and services -- that competition results in better products, more choice and the lowest feasible prices.  
 
“The paper also fails to engage in any before and after analysis that would show that less regulation results in more competition and lower costs for many motorists. For example, New Jersey and South Carolina have seen new carriers come i

Published on April 28, 2008