The Property Casualty Insurers Association of America (PCI) has criticized a recent study on auto insurance ratings, saying that the study’s authors have a “fundamental misunderstanding” of how underwriting works.
The association is criticizing the latest study published by the Consumer Federation of America (CFA), which claims that low-mileage drivers are at lower risk of accidents, but still end up paying just as much for insurance.
“This is the latest in a long series of studies from the Consumer Federation of America based on flawed research and a fundamental misunderstanding of auto insurance underwriting and rating,” commented PCI vice-president of policy, research and international David Snyder.
Snyder explained that insurers use various factors that can accurately predict the likelihood of an individual filing a claim, how costly the claim would be, or how likely the loss is to occur. He said that this allows insurers to more accurately price a policy.
The PCI executive critiqued the study’s seemingly exclusive focus on mileage as a factor for pricing policies.
“The report itself demonstrates that mileage is often considered but, as one would expect in a competitive market, it is done so differently among insurers,” Snyder pointed out. “Additionally, there are issues of validation and just using minimum coverage as the report does may not reflect the full range of differences of rates including mileage.”
He also added that the study ignores discount plans that some carriers offer which include usage-based insurance programs. Usage-based auto insurance programs, in particular, have documented that although vehicle mileage is important, driver behavior and driving conditions are even more vital in predicting risk of loss.
“However, predicting future losses has actually gotten more accurate as a result of insurers’ use of additional data that and factors,” Snyder remarked. “Consumers should be assured that auto insurance pricing is closely scrutinized by state insurance regulators and it is subject to rigorous actuarial standards which ensure that rating factors accurately measure risk and comply with the law.”
