Insurance Information Institute responds to Consumer Reports car insurance article

Auto insurance companies claim they can save you money, but in "The Truth About Car Insurance," Consumer Reports says otherwise. The magazine conducted research for two years in which they analyzed more than two billion car insurance price quotes from more than 700 companies.

In a statement, James Lynch, the Insurance Information Institute's chief actuary and director of information services said:

"The practices highlighted in the Consumer Reports article have been scrutinized by industry detractors for decades and approved by state regulators for just as long. The detractors' arguments have typically been found wanting. For example, the federal government looked at credit scoring a decade ago and concluded in its 2007 report that "scores are effective predictors of risk under automobile policies." A number of state governments have reached the same conclusion. Insurance companies are required by law in every state to use data to show that all discounts and surcharges reflect the underlying risk of insuring that driver. Their analyses are filed with and approved by state regulators.

The article implies that the auto insurance market lacks competition, but that is just plain wrong. Literally hundreds of companies compete, and no insurer dominates. And the increasing sophistication that the article decries is a key reason that the percentage of uninsured drivers is falling and the number of people who find themselves in high-risk auto pools is at a record low.

The idea of solely basing one's premiums on one's driving record is an attractive one except that it doesn't work as well as the article implies it should. Of course it doesn't - why would insurers waste their money on complex solutions when a simple one is available? Insurers would not purchase tens of millions of credit records, for example, if that information were bad at predicting future driving behavior. Nor would they spend millions on actuaries and other math experts to build models using that information. Insurers are in the business of underwriting risk - not setting money on fire.

Most in the insurance industry agree with Consumer Reports that any person who believes they are being overcharged or underserved by their insurance company should shop for another."