New research from the CFA is sparking discourse about auto insurance rates.

What auto insurers need to know about the CFA report controversy

An advocacy group called the Consumer Federation of America (CFA) released findings Sept. 26 suggesting that income may be playing a greater role in determining auto insurance premiums than driving records. The report made a number of claims, including the following:

  • High earners with DUIs frequently pay less than "drivers of modest means" who have a clean driving record. 
  • "Moderate-income drivers" with flawless records have higher rates than high earners who caused an accident involving an injury. 
  • Medium-income drivers with few points on their record will pay more than high-income drivers with many. 

These findings are based on analysis of premiums offered by "the nation's five largest insurers" in 10 U.S. cities. 

Backlash from the Property Casualty Insurers Association
Shortly after the report was released, the Property Casualty Insurers Association's vice president of policy development and research, David Snyder, issued the following statement:

"The CFA's latest study on auto insurance pricing is flawed and misleading. The central flaw in the report is that it fails to take into account that all the rating and underwriting factors insurers use are proven to increase the accuracy of predicting the risk of loss."

According to the New York Times, Snyder mentioned age as one of the factors the study neglects, as well as driving history, and more specifically, how long the customer has been a licensed driver. These details and others like them are key determinants of the risk profiles assigned to insured drivers, and according to Snyder, a thorough and accurate analysis of auto insurance premiums would require their inclusion. 

"[W]ithout an 'apples to apples' comparison it is impossible to isolate the impact of individual factors as the CFA attempts to do by singling out a driver with a driving under the influence conviction. A component of one profile indicated that the driver went six months without insurance, which is a significant factor in predicting risk."

Outliers and unanswered questions

"The PCI noted that consumers have significant market choice."

One of the most notable outliers presented in the study also happens to be the biggest city referenced in CFA's research: Los Angeles. According to the CFA, in Los Angeles, a city of more than 3 million in the state that has the highest number of licensed drivers in the country, "clean drivers always pay less than the drivers with points on their record." The CFA attributed this to California's consumer protection policies. 

In fact the study used this outlier as an argument for why more consumer legislation is needed in other parts of the country. The PCI, however, noted that consumers have a significant market choice, and the liberty to shop around for better premiums. 

And because the study only references five auto insurers, it remains unclear if the findings actually indicate a strong enough need for new policy. Even if all of these findings are taken at face value, Snyder's argument about market choice raises yet another question: Does this point to a policy issue, or potential problems pertaining to the specific insurers mentioned in the study?

At this point in time, all of these details are somewhat nebulous, and until a deeper dive into the matter is taken, the controversy will remain bloated with unanswered questions.