Auto Insurance Reform
The tide of public frustration and indignation over rising auto insurance rates appears unabated. Consumers cannot refuse to buy; auto insurance is a necessity and, in most states, is compulsory. The problems are threefold: inadequate regulation, inadequate competition and inadequate comparative price information and voice for motorists.
Presently, state regulation of the insurance industry is mostly a sham. Insurance Departments have few or no actuaries, little authority and are surrounded by politically powerful insurance industry/lobbyists, such as Clay Jackson in California, who rule the roost. Insurance regulators need to be strengthened with staff, funds and authority to establish a prior rate approval system that makes auto insurers open their books and prove any rate increases before they are imposed on consumers.
Prior rate approval would answer publicly under cross-examination and appeal what is now determined by company fiat–such as cranking in investment income along with premium income to determine rates and disclosing the assumptions for costs and reserves and wasteful expenditures.
Auto insurers are both inefficient and extravagant with their
top executives. They claim to lose money nearly every year but somehow their profits, assets and surplus keep going up along with their executive-bonuses and-other compensation.
Properly equipped, insurance departments should require good cause declared for any cancellations and coverage reductions. First and foremost in determining policy prices should be the driver’s safety record with place of residence coming in a distant second. Otherwise, drivers with good safety records will continue to have to unfairly subsidize bad drivers just because the former live in the same general neighborhood.
As provided for in the victorious Proposition 103 in California, auto insurance companies should be-required to carry a membership solicitation to join a consumer policyholders’ group in their premium billing envelope. This will assure a strong, organized consumer champion participating with skilled staff in regulatory proceedings and grass roots mobilization.
The way to advance a higher quality and depth of competition over prices, coverage a-id services is to repeal the antitrust exemption at federal and state levels which permits insurance companies to fix prices and engage in other anti-competitive actions.
Wouldn’t it improve consumer bargaining power if buyers of auto insurance could purchase as a group? Ana shouldn’t insurance agents be allowed to discount their commissions to win your business? This good, old-fashion competition is prohibited by state laws lobbied through the legislatures by insurance industry power. These so-called “fictitious group” and anti-rebate laws are long overdue for repeal.
But the most basic and longer term reform is redirecting this giant profitable industry toward loss prevention–the constant advocacy for safer cars, better bumpers, lower repair costs from superior engineering, safer highways and drivers. Using its political and economic muscle, the industry could achieve stronger safety standards and reduce casualties and property damage as the most effective, humane way to reduce both industry and consumer costs.
When the USAA auto insurer, the nation’s 7th largest, announced last year that it would pay $300 and reduce its personal injury premium for customers who buy air-bag equipped cars, loss prevention was advanced.
Previous successes by a few auto insurers in loss prevention point the -way for huge savings in life, limb and property damage which are achievable–but only if the insurance industry as a whole stopped viewing itself chiefly as a financial cash cow instead of an engineering underwriting business.
The day will come, rest assured insurance moguls, when millions of consumers will be purchasing group auto policies, expecting you to be pressing for safer and less damage and repair prone vehicles, and negotiating with you from a position of market and political power.