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Wednesday, March 04, 2020 (2:00 PM) — Drivers of Discrimination: An Examination of Unfair Premiums, Practices and Policies in the Auto Insurance Industry
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This hearing will have one panel with five witnesses:
• Douglas Heller, Insurance Expert, Consumer Federation of America
• Elizabeth Kelleher Dwyer, Superintendent of Insurance, the State of Rhode Island, on
behalf of the National Association of Insurance Commissioners
• Eric Poe, CPA and Chief Operating Officer, CURE Auto Insurance
• Sonja Larkin-Thorne, Consumer Advocate (retired)
• Erin Collins, Vice President- State Affairs, National Association of Mutual Insurance
Companies
Purpose
In every state except New Hampshire and Virginia, drivers are required to purchase auto
insurance, making auto insurance coverage a necessity for the vast majority of U.S. drivers. Like
other insurance products, auto insurance premiums are generally priced based on an insurance
company’s estimate of what it will pay out in claims through the use of complex algorithms that
include consideration of factors that are intended to provide a more individualized risk-based
premium. Auto insurance premiums, for example, are based in part on driving related factors such
as an individual consumer’s driving record.
But the use of such factors can raise questions about fairness; for example, racial profiling and other policing tactics that disproportionately target lower income and minority communities could artificially increase traffic violations for certain consumers. Auto insurance premiums also often utilize several non-driving related factors such as a consumer’s credit history, homeownership status, professional occupation, and educational attainment. The use of these non-driving related factors also raises questions about fairness because it does not have an obvious correlation to losses covered in an auto insurance policy, and because these factors can sometimes serve as proxies for socioeconomic status and race.
The Role of the Federal Government in Auto Insurance
Under the McCarran-Ferguson Act, the insurance industry is regulated primarily at the state level.
The National Association of Insurance Commissioners (NAIC) helps to coordinate regulation
across states. The Dodd-Frank Wall Street Reform and Consumer Protection Act established the
Federal Insurance Office (FIO) within the Department of the Treasury, which has the authority to
“monitor the extent to which traditionally underserved communities and consumers have access
to affordable non-health insurance products,” but does not have authority to issue regulations or
preempt state laws beyond those that are not in compliance with international standards.
Research on Discrimination in Auto Insurance Pricing
Building on studies showing discrimination in automobile finance and purchasing, researchers
have found evidence of disparate impact in auto insurance rates. According to a 2015 study
conducted by the Consumer Federation of America (CFA), “on average, a good driver in a
predominately African American community will pay considerably more for state-mandated auto
insurance coverage than a similarly situated driver in a predominately white community.” Even
in upper middle-income, predominately African American communities, the 2015 CFA study
found that auto insurance premiums were on average 194 percent higher than the average premium charged to similarly situated drivers in an upper middle-income, predominately white community.
A 1997 analysis by the Center for Economic Justice found that “drivers in poor and minority
communities were disproportionately rejected by standard insurers and forced into the higher cost
non-standard” insurance plans. A 2017 joint study by ProPublica and Consumer Reports found
that people living in predominantly minority zip codes in California, Illinois, Missouri, and Texas
were paying more for their auto insurance than individuals in white zip codes.
A 2017 study by CFA also found that “female motorists with perfect driving records often pay significantly more for auto insurance than male drivers with identical driving records and other characteristics the insurers use to price auto insurance.”
Hearing Page: https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=406259
03/04/2020 — Drivers of Discrimination: An Examination of Unfair Premiums …- (EventID=110631)