Recently, a house bill introduced in Delaware raised some important questions about the factors auto insurance providers use to price their policies. The Consumer Federation of America endorsed the bill, while others, like the American Insurance Association, were against it. Ultimately, the bill was tabled last week, but not before some valid car insurance issues were raised.

House Bill 80 in Delaware

House Bill 80, introduced in Delaware in mid-March, is the piece of legislation in question. If passed, the bill would have limited which insurance rating factors companies were allowed to take into account when setting rates.

Basically, it aimed to eliminate the use of non-driving-related factors that insurance providers currently use. These include a driver's age, education, martial status, credit score, gender, occupation, and more.

A recent survey conducted by ORC International on behalf of the Consumer Federation of America (CFA) showed that fewer than 40% of consumers believe these insurance rating factors are fair:

auto insurance factors

Clearly, consumers don't believe the use of these socio-economic factors is fair. However, note that a great majority of them found it fair for auto insurers to use traffic accident and violation data, both of which relate to driving.

That was the exact goal of House Bill 80. It wanted to outlaw the use of non-driving-related factors. Instead, the legislation set four "mandatory factors" companies would have had to use in determining a driver's car insurance price. These are the insured's:

  • At-fault claims experience
  • Driving safety record
  • Number of miles driven annually
  • Number of years of driving experience

The bill would only allow insurers to consider these factors. In addition, it would require companies to provide a good driver discount plan for those that qualify.

Arguments For the Bill

The CFA was a vocal proponent of House Bill 80. They called it "state of the art" in terms of consumer protection. The organization also believes it would have eliminated unfair pricing and allowed "good" drivers to see lower rates.

According to the poll conducted by ORC International on the CFA's behalf, consumers agree too. They overwhelmingly voiced that auto insurance prices should be based on driving records, not socio-economic information.

The CFA cited similar legislation used in the State of California as proof that such as system could work. Their research showed that the California law, which is similar to House Bill 80, has:

  • Held down insurance prices
  • Enhanced competition among insurers
  • Led to the fairest pricing system in the country

The CFA reviewed 21 years of data on California and Delaware. Over that time frame, auto insurance rates in California hardly changed, dropping by 0.3%. Meanwhile, in that same time, rates in Delaware increased by 79.6%.

The organization believes House Bill 80 would have led to insurance prices going down and an improvement in road safety. Plus, it would be fairer because drivers would be priced based on how they drive, not who they are.

Arguments Against the Bill

auto insurance factors
There were also those who were opposed to House Bill 80, including Ian Adams of the R Street Institute and Eric Goldberg, the Vice President for the American Insurance Association (AIA).

These two had similar counterarguments as they urged Delaware to reject the bill.

First off, they argued that the non-driving-related auto insurance factors in question - credit score, age, education, martial status, gender, etc. - were good for the industry. Multiple studies have shown that these factors are correlated to the risk of loss. Also, they believe that these factors make ratings more precise.

Under the system proposed by House Bill 80, insurers would have to follow mandatory rating factors, which forces them to assign the same value to each factor. Both Adams and the AIA thought this would stifle competition and work against Delaware's drivers.

Finally, they argued that preventing insurance providers from using certain factors would force everyone to pay more than they otherwise would. In their minds, insurers are able to effectively use the non-driving-related factors to better distinguish higher- and lower-risk drivers. Because of this, the bill would basically be asking good Delaware drivers to subsidize insurance costs for bad ones.

The Bottom Line

Ultimately, House Bill 80 was tabled in committee on April 5th. In other words, the committee decided to suspend consideration of the bill indefinitely.

So, we won't be able to see which side of the table would have been right had the changes gone through. However, the bill did raise some legitimate questions about how and why auto insurance is priced the way that it is in many states. Hopefully, creative solutions that make pricing fairer continue to be introduced and implemented.

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