CHICAGO &ndash; Once again, the Consumer Federation of America (CFA) has issued a severely flawed, slanted, and incomplete report that is long on rhetoric and short on even a basic understanding of insurance. 

The report &ldquo;<a class="fc-blue td-underline" href="https://consumerfed.org/wp-content/uploads/2023/04/Auto-Insurance-Discrimination-in-New-York-Report.pdf" style="">The Thousand Dollar Insurance Penalty</a>&rdquo; fails to consider many of the complexities involved in pricing insurance based on the actuarial probabilities of future loss but instead focuses on achieving a predetermined result&mdash;comparing premiums with no consideration of the future losses that the premiums must cover.

Most concerning, their report infers that insurers are engaging in unfair discriminatory pricing practices. To set the record straight, when determining the fairness of rates, you need to consider not just the premium charged but also the expected losses or claims that are likely to be filed. To have a complete picture and make a fair decision, it is important to look at both losses and premiums paid.

Insurers are committed to addressing the underlying causes of losses, especially in vulnerable communities, and have supported recent federal initiatives to do so as well as our on-going work and commitment to roadway, home, and building safety as strategies to lower the potential for property damage.

The insurance industry is also committed to examining the intersection of consumer fairness, social justice, and industry initiatives, including: public policy; operations; diversity, equity, and inclusion in the workforce, board room, and supply chains; community involvement and engagement; risk mitigation; and establishing and enhancing partnerships with government and non-government organizations in underserved communities.&nbsp; 

Insurers are fully committed to the fair treatment of all consumers, which is why they are focused on using risk-based pricing principles. As a result, policyholders who pose equal risk are treated equally. This means individuals who represent the same risk will pay the same amount for insurance. 

In this way, premiums are tied to the expected risk. By using the most accurate underwriting and rating tools available, insurers are able to more accurately and fairly predict which consumers are less likely to have an accident or file a claim. 

Insurers base prices solely on the risk of loss &ndash; the lower the risk of loss, the lower an insurance premium will be for an insurance consumer. However, the CFA report does not even attempt to factor in the cost of claims. Their report only looks at premium quotes. Additionally, their study provides no evidence that the rating factors they criticize are not accurate tools for assessing risk.

We have several additional serious concerns about the value and conclusions of CFA&rsquo;s NY study:

<ol>
	<li style="">Initial insurance quotes are not necessarily the same as the final premium that is charged. Insurance quotes often undergo significant changes before a final premium is determined, so any study relying on them is flawed.</li>
	<li style="">The report is over-reliant on motor vehicle records in classifying so-called &ldquo;clean drivers.&rdquo; The report fails to recognize that state motor vehicle records provide a very limited view of how careful or risky a driver may be. Motor vehicle records can be unreliable because there are events that occur but are not recorded. Even serious offenses can be plea bargained down and, in many states, a person can hide speeding tickets and other violations by simply going to traffic school or paying a fine. In these situations, the driver&rsquo;s record is wiped clean, and insurers are not aware of important information and unable to draw an accurate picture of the driver. </li>
	<li style="">Credit-based Insurance Scores (CBIS), which are distinct from credit scores used by lenders, add an objective and heightened degree of risk assessment. Numerous governmental as well as private studies prove the value of CBIS in assessing exposure to future risk and they are not proxies for race or income.</li>
	<li style="">The report references that the 2017 Federal Insurance Office (FIO) study identified much of New York City as being unaffordable. The CFA report does not mention that FIO also notes that mandated auto insurance limits and coverages play a significant role in what consumers pay for insurance. New York&rsquo;s no-fault coverage requirement mandates the purchase of higher amounts of coverage, which makes price comparisons with other states problematic. </li>
	<li style="">The report also falsely alleges that insurers apply the CBIS score prior to factoring in territory or driving record, thus multiplying its impact. In reality, it is impossible for CFA to make this generalization as each insurer uses its own unique pricing model and works to ensure that each factor used is weighted appropriately to avoid putting too much weight on any single variable.</li>
</ol>

We also reject the notion that there are non-driving factors used to price insurance because all the factors that insurers use are based on risk and the likelihood and cost of future claims. If the factors insurers use did not help assess the risk of future loss, insurers would not use them, and regulators would not permit their use. This risk-based approach is the fairest way to price insurance. 

Removing factors such as ZIP Codes and CBIS as groups like the CFA demand would mean auto insurance rates would be less fair and accurate. Additionally, by eliminating CBIS, the weight of other rating variables would increase and that would tend to impact lower-income individuals negatively.

The CFA Report takes aim at CBIS. However, the vast majority of states permit the use of credit-based insurance scores because there is a very high correlation between insurance scores and the likelihood of filing insurance claims. Only four states&mdash;California, Hawaii, Massachusetts, and Michigan&mdash;do not allow auto insurers to use CBIS.&nbsp; In doing so, they are forcing a majority of drivers to pay more than they would if CBIS were allowed.&nbsp; When Washington moved to ban the use of CBIS there was great opposition and outcry from seniors and consumers facing immediate and triple-digit increases for auto, home, boat and renters insurance. APCIA actively opposes legislation and regulations to ban the use of this accurate and objective risk assessment tool.

Insurers recognize that no one wants to pay more for insurance than they should. This is why insurers are committed to using a wide variety of objective data including credit-based insurance scores that have been proven to accurately predict an individual&rsquo;s likelihood of filing a claim. This personalized approach provides a more complete picture of each consumer and is the fairest way to determine insurance premiums.

The foundation of insurance is risk-based pricing, which means that insurers price insurance according to the expected risk of loss of the policyholder, based on past loss experience and objective data that has a statistical correlation with expected losses and expenses.

Numerous studies have demonstrated that insurers&rsquo; use of CBIS and other risk factors benefit consumers. These widely accepted industry standards are proven to accurately predict both an individual&rsquo;s likelihood of filing a claim and the cost of claims. Thanks to this information and accuracy, consumers benefit with lower rates and more choices as they shop for insurance.

To help lower insurance costs, insurers are supportive of efforts to increase roadway safety which saves lives and reduces injuries. Insurers work to reduce costs by attacking the underlying costs that comprise the main factors impacting insurance premiums. On the other hand, banning accurate rating factors such as credit-based insurance scores will have the unintended consequence of causing millions of drivers to pay more for auto insurance.

Underwriting and Rating--Territorial Ratings

APCIA issued a statement "Setting the Record Straight" regarding a flawed Consumer Federation of America (CFA) report that calls for eliminating credit-based insurance Scores and territorial rating in New York.

Service Contract Reimbursement--Commercial

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