Insurance Industry Vigorously Refutes CFA Study on Auto Insurance Regulation |
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Written by U.S. Insurance News
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Monday, 05 May 2008 |
The Consumer Federation of America (CFA) spoke, and the auto insurance industry responded.
Quickly and vigorously.
The CFA released a study on April 24 that claims that consumers benefit from laws requiring insurers to get advance approval before setting auto rates. Several prominent organizations were swift to refute those claims.
“We hold exactly the opposite view than the CFA, as there is a large body of rigorous, independent research that arrives at the opposite conclusion ,” said Neil Alldredge, vice president for state and regulatory affairs for The National Association of Mutual Insurance Companies (NAMIC), in a statement the same day. “Prior approval laws, such as those found in California and New York, harm consumers by keeping rates high and discouraging competition.”
The CFA study also claims rates have risen more slowly in states that impose tighter regulation on insurers. However, NAMIC believes the study overly emphasizes the average percentage increase in automobile insurance rates during the time period studied but ignores the fact that the states with the highest rates today are prior approval states.
“California, whose regulatory system is hailed by the CFA as ‘uniquely effective’, currently has the second highest auto insurance premiums in the nation,” Alldredge said.
The CFA study also claims that states with less regulatory structure over auto rates have higher rate increases and less competitive markets.
“Taken to its logical conclusion, that would mean Illinois should have the highest rates in the country, since it is an open competition state,” Alldredge said. “In fact, Illinois ranks 28th.”
Debra Ballen, executive vice president for Public Policy Management at the American Insurance Association (AIA), also responded to the CFA study on the day it was released.
“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,” she said.
Ballen pointed out that the study neglected to use any before and after analysis that would demonstrate 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 into the market following an easing of price controls and moderating prices for consumers,” Ballen explained. “More recently, Massachusetts has reformed its regulatory system and encouraged competition in its auto insurance market; already, insurers that have long shunned the Massachusetts are entering the market to compete vigorously.”
The CFA report focuses on California’s Proposition 103 auto insurance system, claiming its regulatory requirements are the best in the country. Ballen cited a more in-depth study recently released by the Competitive Enterprise Institute and the Heartland Institute, which ranked California 46th out of 50 states and graded the state with an “F” based on two factors: how free consumers are to decide what insurance products will meet their needs, and how free insurers are to provide products that meet consumers’ real or perceived needs.
“While it is true that Californians have enjoyed some savings in the years since Proposition 103 was enacted, an analysis of underlying loss costs indicates that the vast majority of the savings were due to reductions in the underlying cost of insured claims, not regulation of prices, and that the loss cost reductions had little to do with Proposition 103,” Ballen concluded.
The Insurance Information Institute (I.I.I) agreed with both NAMIC’s and AIA’s assessment of the CFA study and Proposition 103.
“The Consumer Federation of America’s view that costly new regulations on auto insurers are needed at a time when Americans can barely afford to put gas in the tank is incorrect and misguided,” said Dr. Robert Hartwig, an economist and president of the I.I.I.
Auto insurance prices increased just 0.4 percent in 2007—just one-seventh the 2.8 percent increase in the overall Consumer Price Index (CPI) last year and less than 1/100th of the 41 percent increase in gasoline prices, the I.I.I. noted.
“Maintaining a healthy auto insurance market and efficient regulatory structure is vital because both factors stimulate greater competition amongst insurers,” Hartwig said. “Increased competition promotes more choices and savings for drivers.”
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