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Leading causes of death in the United States in 2011 Heart Disease 611,105 Cancer 584,881 Chronic Lower Repertory Disease 149,205 Accidents 130,557 Stroke 128,978
Citation preview
How the Growing Use of Non-Driving Factors in
Auto Insurance Pricing Affects Consumers
Consumer Federation of America’s28th annual Financial Services Conference
Washington, DC - December 3, 2015James Lynch, FCAS MAAA, Chief Actuary
Insurance Information Institute 110 William Street New York, NY 10038Tel: 212.346.5533 Cell: 917.359.3908 [email protected] www.iii.org
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Three Facts About Non-Driving Factors
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1. Most Factors Are Non-Driving Factors
< 16
16-20
21-24
25-34
35-44
45-54
55-64
65-74
>74 -
5,000
10,000
15,000
20,000
25,000
30,000
Crashes per 100,000 Drivers, By Age
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Male Female -
1,000 2,000 3,000 4,000 5,000 6,000
Crashes per 100,000 Drivers, By Gender
SOURCES: U.S. Department of Transportation, National Highway Traffic Safety Administration, Federal Highway Administration.
Age
Gender
Territory/State
No. 2: Most Drivers Have Clean Driving Records
In Accident5.7%
Ticketed5.3%
Clean Record89.0%
In One Year. . .
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Ticket or Ac-cident or Both
29.5%
Clean Record70.5%
In Three Years. . .
Three-year calculation makes conservative assumption that no ticketed driver in a year is in an accident that year.SOURCES: Insurance Information Institute calculation using data for 2012 from ISO, a Verisk Analytics company, and Langton and Durose, Police Behavior During Traffic and Street Stops, 2011, Department of Justice, p. 7.
No. 3: Insurance Scores Are Effective
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1 2 3 4 5 6 7 8 9 10 -
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00 1.93 1.59
1.48 1.36
1.25 1.25
1.15 1.08
1.12 1.00
Paid Loss by Insurance Score, Collision Cov-
erage
Paid
Los
s Rel
ativ
e to
Hig
hest
Dec
ile
Relativity Controlled for Ethnicity, Neighborhood Income.SOURCE: Federal Trade Commission, Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance, July 2007, Table 6.
Confirming Studies IncludeNAIC (1996)Virginia (1999)Michigan (2002)Texas (2003)Texas (2004)FTC (2007)New Jersey (2008)Georgetown U (2015)
No. 4: Insurance Scores Lower Ratesfor Most Drivers
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Excellent Score
Good Score Poor Score $-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$1,409
$1,721
$3,826
Str Avg; $2,319
Wtd Avg; $1,811
Average Quotes: Florida
SOURCE: Insurance Information Institute calculation based on Consumer Reports data.
Drivers Most Likely to Be in Accident Pay
More.
Safer Drivers SaveStraight Average: Two-
thirds Save $754 (33%)Weighted Average: 95%
Save $106 (5%)
Increase14.8%
Decrease39.3%
No Change45.9%
Impact of Credit Scores on Consumers
SOURCE: Arkansas State Insurance Department, Use and Impact of Credit in Personal Lines Insurance Premiums Pursuant to Ark. Code Ann. § 23-67-415, 2015, p. 4.
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Three Facts About Price Optimization
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1. Insurers Have Always ‘Optimized’ – With Regulator Knowledge & Approval
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REDACTED
Other Examples: Rate Capping, Teen Drivers
Companies Temper
Increases Based on ‘Market
Judgment’
Sources: System for Electronic Rate and Form Filing (SERFF) via SNL Financial; Insurance Information Institute.
Regulators Are
Generally OK With
That.
2. Optimization Is Not Price Gouging
Traditional PracticeUsed ‘Seat-of-the-Pants’
Judgment to Discount Off Indication
What’s NewSoftware Informs the
Judgment
Never Exceeds Actuarial Indication Today's Rate
Actuarial Indication
$98 $100$102$104$106
$100
$101
$102
$103
$104
$105
$106
An Example
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Selected: +3%
Indicated: +6%
3. Optimization Doesn’t Raise Rates; It Distributes the Rate Change
As Practiced in U.S.Remains True to Cost-
Based PriceApplied to Classes,
Not Individuals
Innovations Are Usually Encouraged, With Appropriate Restraint
Overall Class 1 Class 2 Class 3 Class 40%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
6%
9%
5%
8%
2%
3%
6%
2%
4%
0%
3%
8%
0%
3%
1%
Indication Judgment Optimized
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Example (cont’d): There Are Many Reasonable Ways to Achieve
Reasonable Rates.
By Class
Indication
Exceed
Doesn’t
www.iii.org
Thank you for your timeand your attention!
Twitter: twitter.com/III_Research
Insurance Information Institute Online:
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