Industry’s Ability to Predict Loss Drives Auto Insurance Rates Lower: I.I.I.

Regulators Have Consistently Backed Actuarially Sound Underwriting, Says the I.I.I.

TALLAHASSEE, FL, February 9, 2007 � Florida�s auto insurance market is highly competitive because insurers have the ability to incorporate into their pricing decisions a broad range of actuarially sound underwriting factors, including a policyholder�s occupation and education, according to the Insurance Information Institute (I.I.I.).

In testimony delivered today to the Florida Office of Insurance Regulation, Dr. Robert P. Hartwig, president and chief economist of the I.I.I., said, �All underwriting factors used by auto insurers, including occupation and education, have been actuarially demonstrated to enhance the insurer�s ability to predict loss.�

In his testimony, Hartwig cited a June 2006 Maryland Insurance Administration study, which looked at an insurer�s use of occupation and education when pricing their auto insurance policies. The administration found that these factors are actuarially predictive of loss and are not unfairly discriminatory.

�Restrictions in actuarially valid underwriting criteria would lead to more uncertainty and less competition, higher prices and growth in auto insurance markets of last resort,� Hartwig said.

New Jersey�s Department of Banking and Insurance also approved an insurer�s request to use occupation and education as part of its auto insurance underwriting criteria in 2004, Hartwig noted.

Most auto insurers base price on factors such as the type of vehicle the policyholder owns, how many miles they drive, his or her driving record and the community in which a policyholder resides. Occupation and education are also important predictors of loss.

�No single factor determines eligibility for coverage or the premium charged,� Hartwig added. �In fact insurers simultaneously employ up to 20 or more risk factors.�

Risk or cost-based pricing also enhances competition, according to Hartwig. �To the extent insurers can employ actuarially valid underwriting criteria to better predict future loss, uncertainty is reduced,� he said. �Reducing uncertainty leads to more competition among insurers, more choices for consumers and lower average costs.�

According to the I.I.I., the average driver in the U.S. will pay less for auto insurance premiums in 2007 than he or she did in 2006, the first year-to-year drop since 1999; the favorable trend is tied in part to a competitive marketplace in almost all 50 U.S. states.

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The I.I.I. is a nonprofit, communications organization supported by the insurance industry.