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Car Insurance Rate Debate Revs Up

Urbanites Pay More, But Bill Would Ban Rates Based On Where Drivers Live

January 26, 2007
By DIANE LEVICK, Courant Staff Writer

Connecticut's urban residents and lawmakers have been complaining for years that auto insurance rates are much higher in cities than in suburbs, and the frustration surfaced anew at a legislative hearing Thursday.

The Insurance and Real Estate Committee aired a proposal that would prohibit auto insurers from basing rates on where drivers live, a measure aimed at putting more emphasis on each consumer's driving record.

Elimination of rating territories, which has been proposed many times in past years, drew opposition again Thursday from the industry and its regulators, support from Bridgeport officials, and interest from some urban legislators on the committee.

The proposed bill - its language is not drafted yet - would lower insurance rates for urban areas, but increase rates for rural and many suburban towns. That is considered a major factor in why the idea hasn't yet become law.

The disparity in rates between cities and suburbs is "arbitrary, discriminatory, and it's just not fair," said Brian Williams, deputy chief administrative officer for Bridgeport, representing Mayor John M. Fabrizi. "I ask that the committee do the right thing once and for all and create a level playing field for all residents of this state."

It's not clear whether the proposal has any better chance of passage this year than in past attempts, but Thursday's hearing put legislators on notice that the issue isn't going away.

State Rep. Jack Hennessey, D-Bridgeport, who had introduced the bill, said his insurance rates more than doubled when he moved to Bridgeport. A professional truck driver, he told the committee he has had 16 years of "safe driving," but still pays more than $3,000 a year for his own insurance.

Hennessey, citing Bridgeport's high property taxes and auto insurance rates, said "it's an exorbitant burden that my constituents can't afford."

"What's happening is they're all leaving" for more affordable places, added Hennessey, who is not a member of the insurance committee. "These are people that quite often come to this country with just the shirt on their back, worked hard, never asked for a dime from anybody, and now they can't afford to live here. They can't afford to hang onto the houses that they built with their own hands."

John Purple, chief actuary for the Connecticut Insurance Department, testified against banning territorial rating. He said insurers may not be willing to write policies "when the pricing does not accurately reflect the risk," and that would disrupt the market.

Connecticut auto insurance rates have increased less than 1 percent in each of the past three years on an overall statewide average, said Robert Kehmna, president of the trade group Insurance Association of Connecticut.

Territorial rating exists in every state, and states that tried to restrict it found that many companies retreated, Kehmna said.

"We have a highly competitive marketplace that works to the benefit of all insureds, whether they be urban or non-urban," he said.

Purple noted that a Connecticut rate rule, which dates from the late 1970s, already gives some protection to urban residents. The "75-25" rule says a territory's rates can only reflect 75 percent of its own claim experience, and that the other 25 percent must be based on statewide claim experience.

That has the effect of making rates lower than they would otherwise be in cities, where claims experience tends to be worse than the statewide average. For ratemaking purposes, a driver's claim is counted against the territory where the driver garages the car, not the territory where the accident happened.

The 75-25 rule results in a "forced subsidization" of urban drivers by drivers outside cities, and insurers have never felt the rule is actuarially justified, Kehmna said.

State Rep. Charles Clemons Jr., D-Bridgeport, asked whether the industry would consider a compromise and reduce territorial rating. But Kehmna said insurers would oppose any change to the system.

"Under this territorial system, it would seem as if the person living in the suburbs with a checkered [driving] history, because of where the car is garaged, is going to pay still less premium than myself, with an impeccable driving record living in the urban center," Clemons said.

State Sen. Joan V. Hartley, D-Waterbury, a vice chairwoman of the insurance committee, also said it's difficult for constituents to believe that where they live should affect their personal premiums more than their good driving record.

"It's a hard sell," she said.