My Car Insurance Is How Much?

This article appeared in the GAO Review, Vol. 15, Issue 1, Winter 1980. All of the states except Illinois have some legal authority over the price of automobile insurance. In general, the law provides that rates be neither excessive, inadequate, nor unfairly discriminatory. The original impetus of rate regulations was to prevent prices from becoming so low that insurance companies did not have sufficient reserves to pay claims. GAO found that the States varied in their handling of insurance rate regulation. One common element was the reliance by most states on insurance company data rather than their own actuarial analysis. Actual rates were similar in most States. GAO felt that regulation of the insurance industry should move away from rate regulation and toward requiring companies to provide more meaningful information to consumers. However, deregulation was not recommended for one determinant of price. Differences in price based on age, sex, marital status, and residence were often found to be discriminatory. The current system may be excessively overcharging one segment of the population (young drivers) on the basis of imperfect information.