Hunter vs. Insurance Companies

In the past several months you may have come across some full page advertisements by a group calling itself The Committee For Fair Insurance Rates. Funded by at least nineteen major insurance companies, this Committee has spent over $1 million trying to persuade you to oppose HR 100 and S 372 — bills in Congress that would abolish gender as a basis for establishing insurance rates. On the other side backing these bills are women’s rights, civil rights and some consumer groups.

The great unisex insurance battle is well underway. How can you decide what is fair and economically best for women policyholders? The insurance companies say that rates for women in life insurance will go up $360 million, in auto insurance they will rise $700 million and for health policies they will go down $106 million per year. The companies reject what they call any attempt to replace “cost-based pricing” with unisex pricing. Remarkably enough, they are telling women to oppose any, legislation that allows insurance companies to obtain higher premiums from their female consumers.

Now comes a study by the National Insurance Consumer Organization (NICO), a non-profit group which I helped establish three years ago. NICO’s president, casualty actuary, Robert Hunter, reports that women’s auto insurance premiums would drop by $1 billion a year if classification by gender were eliminated and classification by mileage were introduced.

What, you ask, is classification by mileage? Well, for three years, one company, Commercial Union, has been setting rates based on how many miles the insured car is driven. The company verifies the mileage total by accepting the certification of the insured, by spot checking odometers and a variety of other ways. Commercial Union’s experience is in contrast to other insurance companies who claim that mileage is unreliable and difficult for them to verify. Hunter believes that mileage-based rates will be an incentive for drivers to avoid some discretionary driving, thereby saving energy and traffic casualties.

The legislation pending in Congress does not require mileage classification to replace gender-based rates.But with gender gone, the companies will have to use mileage because that is what gender really reflects, says Hunter. Women on the average drive less then men. “Gender is a surrogate for mileage and everyone knows that,” he noted, adding “what competitor would be so stupid as to resist using mileage, letting the competition, take all the low mileage drivers (with low accident rates) and leaving itself stuck with only high mileage drivers (with high accident rates)?”

More specifically, Hunter acknowledges that rates for women under 25 would increase by about 57 if gender were eliminated and mileage introduced simultaneously. The drop in rates for women occurs in the age group over 25 years, according to his analysis.

The dispute is riot just over figures. For the property-casualty insurance industry, it is also a matter of keeping the federal government out of their business (except, that is, for their supporting a federal takeover of the state laws on manufacturers liability for dangerous products). Also, the industry suspects if gender is abolished as – classification standard, age may be next for the auto insurance field, or some other criterion.

But the nub of the clash is a difference in estimates about whether rates will go up or down. NICO and Hunter vs. the insurance companies. This conflict is what Congress needs to decide. For the acceptance of fairness tends to follow the acceptance of economic benefit.

Readers who are interested in obtaining a summary NICO’s report may send their request in an enclosed self-addressed, stamped envelope to the National Insurance Consumer Organization, 344 Commerce Street, Alexandria, Virginia, 22314.