AIA Refutes CFA Assertions on New York Auto Rates

The American Insurance Association (AIA) today refuted the assertions made in two recent letters issued by the Consumer Federation of America (CFA), responding to charges of “excessive” auto insurance rates and a failure on behalf of the New York Insurance Department to properly oversee auto insurers. The letters, which were sent last week to New York Gov. David Paterson and Insurance Superintendent Eric Dinallo, called for swift action by both parties to “rein in” automobile rates throughout the state.

“An open and competitive insurance market will allow for the development and delivery of better products and more choices,” said AIA Northeast Assistant Vice President Gary Henning. “Rigid rate regulation undermines competition and the marketplace’s ability to respond to consumer preferences. In New York, when flex rating for automobile insurance was in effect from 1995 to 2001, premiums were relatively stable - more so than either before or right after flex rating - and more carriers were writing automobile insurance. While flex rating may not have been the only factor in bringing about this stability, there is absolutely no basis for arguing that this flexibility for carriers in determining rates hurt consumers. Once again, the CFA is incorrect and misguided in its view that increased regulation of auto insurance is beneficial to consumers.”

CFA’s assertion that drivers are driving less says nothing about the type of miles driven, under what conditions, and no statistical evidence about whether there has been any change as yet in loss costs, according to Henning.

Additionally, carriers already take into consideration the insured's driving patterns in the underwriting process (for example, classifications such as commuting vs. pleasure, or even an estimate of miles driven).

“The marketplace is already adjusting. Recently, a number of companies have started reducing rates for policyholders who indicate that they are significantly cutting back on driving in response to higher gas prices, for example, taking public transportation instead of driving to work. That is the competitive market at play,” continued Henning. Henning stated that a competitive automobile insurance market is already serving New York drivers well.

According to the Insurance Information Institute (III), auto insurance rates dropped about five percent from 2004-2006 for the average New York driver and rose by just $8 to $9 in 2007, which is less than one half of 1 percent, well below the rate of inflation as measured by the Consumer Price Index.

“In addition to auto insurance costs steadily falling for most New Yorkers, the number of ways to purchase insurance continues to expand, highlighting the fact that increased competition promotes more choices and savings for drivers,” said Henning.

According to the AIA, the CFA’s loss ratio analysis is misleading in terms of the time periods it excludes. It omits 2007, a more recent year, where the loss ratio for private passenger auto in New York is actually higher than that of the United States. (61.3% vs. 60.4% respectively – according to A.M. Best data). Moreover, going back 10 years, the U.S. and New York loss ratios for private passenger diverge by only about a percentage point (62.0% vs. 61.2%, respectively), hardly “well above” the national average claimed by the CFA.

“The CFA is ignoring the fact that insurance markets often perform on a cyclical basis,” concluded Henning.