Findings

Congress finds the following: (1) Private passenger automobile insurance companies are institutions which help spread risk of loss over a collective group of policyholders. (2) Private passenger automobile insurance is mandated in all States but New Hampshire. Legal penalties for operating a vehicle without liability insurance in these States range from fines, to license suspensions or revocations, to imprisonment. (3) The private passenger automobile insurance industry uses different variables to predict the overall costs and risks of drivers. The analysis and use of these variables ultimately help the automobile insurer set premium rates charged to consumers which the automobile insurer determines to be actuarially supported. (4) A pure loss ratio, a measurement of profitability in insurance, is defined as losses divided by premiums. Statistical correlations between certain variables and pure loss ratios should be interpreted to mean that the selected variable relates to profitability, but not necessarily to the risk that an individual will get into an automobile accident. (5) A growing trend in the private passenger automobile insurance industry is to use income proxies for underwriting and rating. The use of income proxies such as a driver’s education level, occupation, employment status, home ownership status, credit score, consumer report, previous insurer, and prior purchase of insurance by the industry as variables that significantly influence the insurance premiums charged to drivers has become commonplace. Use of these income proxies in this fashion results in higher rates being charged to lower income drivers while lower rates are being charged to the more affluent driver. (6) The American public is largely unaware that a person’s education level, occupation, employment status, home ownership status, credit score, consumer report, ZIP Code, census tract, previous insurer, and prior purchase of insurance may be significant factors used to determine eligibility for preferred auto insurance rates regardless of the person’s driving history. As a result of the individual’s ineligibility for preferred rates, the driver’s policy and rate will be only offered from an affiliate company that has higher rates.