CAS Reviews NAMIC Paper on Matching Rate to Risk
Issues regarding the availability and cost of auto insurance for minority and low-income drivers continue to garner attention. Over the years, there have been a number of studies exploring the topics of disparate impact and fair and unfair discrimination by insurance companies in their underwriting and pricing practices.
The National Association of Mutual Insurance Companies (NAMIC) recently published an Issue Analysis titled “Matching Rate to Risk: Analysis of the Availability and Affordability of Private Passenger Automobile Insurance.” Consistent with the CAS’s recently announced “Approach to Race and Insurance Pricing,” which calls for the CAS to collaborate with other industry organizations addressing related issues, members of the CAS reviewed the analysis and provided recommendations for improvement and further research.
For the study, Dr. Robert Klein, Ph.D., an Affiliate Senior Research Fellow with Temple University and Emeritus Professor of Risk Management and Insurance, Georgia State University, analyzed data on average premiums, pure premiums, and loss ratios for U.S. personal auto insurance, delineated by state and income quartile to observe how these metrics vary with income.
CAS staff research actuary Brian Fannin, who was among the members who reviewed the analysis, found it to be a well-researched academic work. The background and review of prior studies is clearly explained and will serve as a resource to many others hoping to complete similar research in the future. He noted that Dr. Klein’s analysis is focused solely on an examination of policy premium and profitability (loss ratio) by household income quartiles. While these issues are entangled with the problem of racial, ethnic and/or other insurance rating biases, the paper does not treat those biases specifically, nor does it purport to. Fannin concluded that establishment of a statistically measurable link between unfair price discrimination and race would require different data, though similar analysis.
The CAS thanks NAMIC for the opportunity to share member thoughts and reactions, as CAS members can play a useful role in in providing objective work to inform discussions about disparate impact in personal insurance in the United States.
The NAMIC Issue Analysis can be accessed via the NAMIC website at https://www.namic.org/public-policy/papers.
