OAI: Consumer Group's Report Highlights Auto Insurance Ratings Issues

    RANCHO CUCAMONGA, CA, February 02, 2012 /24-7PressRelease/ -- A new report released this week by the Consumer Federation of America (CFA) is keeping alive a long-standing debate over the types of information that should be permissible in the car insurance ratemaking process, according to Online Auto Insurance.

The CFA believes that, among other things, insurers should be restricted to producing only insurance quotes without personal information that would indicate the applicant's financial situation.

While insurers are not allowed to ask an applicant's income level when they apply for coverage, the CFA contends that information about education, occupation, location and credit history--data which insurers are allowed to rate drivers on in most states--basically serve as indicators of income and work the same way.

And according to the consumer group, those variables can have a significant impact on the price of policies. The report cites a Consumer Watchdog study that looked at sample rates for a driver in St. Louis under various conditions. The original scenario was for an executive with a master's degree who lived in a wealthy suburb and ended up being quoted with a rate of $558. When that driver profile is tweaked to be a high school graduate who is unemployed, lives in a worse area and chooses to pay in installments, the rate doubles.

There have already been numerous attempts by state legislatures to get credit history, education and occupation banned as rating factors in many states, but few have succeeded.

A big problem that advocates of banning those factors face is the fact that there have been a handful of studies indicating that things like credit scoring and territorial rating have been tremendously effective at predicting the rate at which a driver will file claims, as well as the size of those claims.

The Federal Trade Commission, for example, published an extensive study in 2007 on the use of credit info in rating formulas. The authors of the report set out to determine, among other things, whether credit scoring unfairly serves as a proxy for identifying drivers as members of certain racial groups.

The FTC concluded that credit-based insurance scores "are predictive of the number of claims consumers file and the total cost of those claims. The use of scores is therefore likely to make the price of insurance better match the risk of loss posed by the consumer."

The FTC went on to say that its findings were "inconsistent with the theory that scores are solely a proxy for race and ethnicity."

Source: http://www.ftc.gov/

Whether the CFA report will successfully push lawmakers and regulators to advance laws that would limit the use of these factors--which have proven to be effective at predicting risk--remains to be seen.

To learn more about this and other coverage issues, go to http://www.onlineautoinsurance.com/quotes/no-personal-info/ to access informative resource pages and an easy-to-use quote-comparison generator.

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