The Consumer Federation of America (CFA) is out with a study that claims consumers fare better and auto insurance rates are lower in states that have a prior approval system, like California. In response, the Insurance Information Institute (I.I.I.) issued a rebuttal, saying efforts to impose onerous and expensive new regulations, such as California’s Proposition 103, on auto insurers nationally can only raise costs and reduce the policy options available to drivers.

The CFA study claimed that California was the nation’s most successful state in keeping automobile insurance rates down and providing comprehensive consumer protections over a 17-year period.  From 1989 to 2005 insurance premiums in the state rose by 12.9 percent, compared with a national average increase of 50.2 percent.  The CFA attributes the low rate of increase to Proposition 103, a 1988 voter initiative that required insurers to set premiums mostly  based on driver safety records, experience and miles driven rather than ZIP codes. J. Robert Hunter, director of the CFA, said, “consumers fare best under a system of prior approval of insurance rates.”

J. Robert Hunter’s latest study brought a sharp response from the Insurance Information Institute.

The III said that competition among U.S. auto insurers is vigorous and growing, providing the nation’s drivers with more choices than ever before. At the same time, the cost of auto insurance is nearly flat or falling for most drivers.

Efforts to impose onerous and expensive new regulations, such as California’s Proposition 103, on auto insurers nationally can only raise costs and reduce the policy options available to drivers, according to Robert Hartwig, president of the I.I.I. He said, “The Consumer Federation of America’s view that costly new regulations on auto insurers are needed at a time when Americans can barely afford to put gas in the tank is incorrect and misguided.  Auto insurance prices increased just 0.4 percent in 2007—just one-seventh the 2.8 percent increase in the overall Consumer Price Index (CPI) last year and less than 1/100th of the 41 percent increase in gasoline prices.” Details of the flaws in the major focal points of analysis performed by the CFA are discussed in the release.  The full release can be accessed on the I.I.I. Web site here.

I.I.I. Response to CFA Study (I.I.I. 4/26/08)

CFA Study (PDF file, CFA 4/24/08)

April 29, 2008