Insurance News

Predictors Of Risk Face Scrutiny

Posted on: April 1, 2009

Residents of urban settings generally get hit with higher automobile insurance premiums and now some lawmakers want to mitigate what they consider an unfair practice.

But the insurance industry maintains that changing the current underwriting formula would be unfair to policy holders who live in low-risk areas.

The contention is resulting with insurance industry lobbyists mounting an attack against a proposed state bill that would place new limits on the use of geography as an underwriting tool that determines premiums.

They argue that such a geographic prohibition would make insurance underwriting less accurate and result in consumers subsidizing policy holders who live in higher risk areas.

Existing state law requires that 75 percent of an auto insurance rate be based on a territory’s own claims experience and the remaining 25 percent be based on statewide claims experience.

The new underwriting formula would require equal consideration of each territory’s own claims experience and statewide claims experience.

According to a recent report issued by the Property Casualty Insurers Association of America, if House Bill 6444 passes, the new formula could cost some Connecticut drivers up to 5.3 percent more for their auto insurance coverage.

“The use of geographic location has been proven to be an accurate predictor of risk,” said Paul Magaril in a written statement, who is the regional manager and counsel for the Property Casualty Insurers Association of America. “Consumers that pose higher risk should pay more for insurance. This bill turns that notion on its head.”

Unfair Burden
Consumer advocates argue that the current law unfairly burdens “good” drivers in urban areas, who are often asked to pay higher premiums because their “territory” poses greater risks for potential accidents.

“Why should a good driver pay twice as much for insurance because he lives in a city, than a driver with the same driving history who lives next door, but across a town?” wrote Attorney General Richard Blumenthal in written testimony to the state’s insurance and real estate committee. “Excessive rates affect virtually every insurance consumer but hit hardest good drivers who live in the cities and older suburban towns, often drivers — with incomes below the state average — who can least afford to pay higher insurance premiums.”

Blumenthal said the 75 percent limit was approved by the state insurance commissioner in the late 1970s in order to reduce the disparity in auto insurance rates between urban and suburban and rural drivers.

But Blumenthal argues that limit has not succeeded in ensuring that rates are affordable for lower income residents who have good driver histories but live in urban settings. The proposed bill creates a common ground between advocates who want to eliminate territorial rating completely and insurers who claim that residence is a relevant underwriting criteria, he said.

But according to the Property Casualty Insurers Association of America (PCI) and the state department of insurance, the shift in practice would increase the rates for rural and some suburban towns and decrease the rates for the highest rated urban towns.

In a letter to the insurance and real estate committee the insurance department warned that “any changes in territorial rating may be disruptive to the marketplace.”

PCI estimates that 61 percent of insured drivers in Connecticut 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.

NewAlliance Names Gibson
NewAlliance Bank, a wholly owned subsidiary of NewAlliance Bancshares Inc. has named Mark Gibson as executive vice president and chief marketing officer.

Gibson will be responsible for all of NewAlliance Bank’s marketing disciplines, including branding and advertising.

Greg Bordonaro is a Hartford Business Journal staff writer.

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