The Impact of House Bills on Auto Insurance: A Comprehensive Analysis

H.R. 1756: The Fair Credit Reporting Act Amendment

Triple-I recently provided commentary on two House bills that could significantly impact auto insurance. The first, H.R. 1756, proposes an amendment to the Fair Credit Reporting Act, which would prohibit the use of credit information in underwriting or pricing auto insurance. Insurance credit scores are used to determine an appropriate rate based on the customer's risk profile. These scores help insurers balance the risk by ensuring that high-risk customers are not undercharged and low-risk customers are not overcharged. Since their introduction in the late 1980s, these scores have been extensively studied and found to be a robust predictor of accident likelihood. Recent research, however, suggests that these scores do not act as a proxy for income, a variable insurers are legally barred from using.

H.R. 2684: The Federal Insurance Office Study Requirement

The second bill, H.R. 2684, would mandate the Treasury Department's Federal Insurance Office (FIO) to conduct an annual study of personal private auto insurance. This study would involve collecting premiums, rating factors, underwriting guidelines, and other relevant data from insurers. With over 250 million private vehicles in the United States, 87% of which are insured, this would be a monumental task. The bill also proposes the public release of each insurer's data, rating algorithms, and underwriting guidelines, including to competitors. This could stifle innovation as insurers would have no incentive to develop new risk assessment variables if they must be shared with competitors.

Current Hotspots and Practical Advice

In light of current events, it's worth noting that the use of telematics, which track driving behavior through devices or smartphone apps, is increasingly being used to assess risk. A study by the Insurance Information Institute found that 23% of insurers use telematics, a figure expected to rise. This method offers a more dynamic and personalized approach to risk assessment compared to static credit scores. For consumers, understanding these changes can help in making informed decisions about their insurance coverage. It's advisable to shop around, compare quotes, and consider telematics options if available, to ensure you're getting the best coverage at the most competitive rate.