NAMIC Opposes Federal Legislation to Limit Underwriting


The National Association of Mutual Insurance Companies voiced strong opposition today to legislation to impose a federal ban on the use of legitimate and actuarially proven underwriting tools in auto insurance.

Appearing at a hearing of the House Financial Services Subcommittee on Housing, Community Development, and Insurance, Erin Collins, vice president of state affairs for NAMIC, said federal legislation is unwarranted and would fly in the face of actuarial science and numerous studies that have found such factors benefit a vast majority of consumers. Members of Congress have questioned the use of some underwriting criteria and the possibility that such factors could be discriminatory, but Collins explained that advanced underwriting factors help insurance companies more accurately assess risk and better price coverage for all consumers.

“The goal of insurance underwriting is to correlate the prices for insurance policies as closely as possible to the likely cost of claims generated by those policies,” Collins said, explaining further that more accurately pricing coverage enables companies to offer more products to consumers. “Utilizing predictive information is unavoidably central to this process as insurance differs from most other products because the actual cost of providing insurance is unknown. Looking back at historic losses helps to forecast future losses, but prior claims alone do not provide enough information to serve as an adequate predictor of future risk.”

Underwriting factors and the underwriting process are often misunderstood given the unique nature of insurance as a forward-looking product, Collins explained, but it is vital in helping companies determine risk in a very crowded marketplace.

“The U.S. auto insurance market is one of the most competitive of any industry in our economy, and competition ensures that insurers have every incentive to accurately and appropriately match the rate to the actual risk that is posed by a driver,” Collins said. “Those companies that predict claim costs better than their competitors are typically more successful.”

Collins pointed out that states have strong consumer protection laws and regulations to ensure predictive underwriting factors cannot be used to unfairly discriminate, and rating factors must be actuarially sound before insurers can make use of them. There is no data, she said, to show that either anti-discrimination laws or their enforcement is lacking in any way.

“Banning the use of underwriting factors would simply disrupt and substantially weaken auto insurance markets across the country, undermine the state-based system of insurance regulation that serves Americans well, and ultimately harm the very consumers such action purports to help,” she said.

Article Posted: 03.04.20
Last Updated: 03.04.20

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