Summary: In response to a congressional request, GAO analyzed the effects of state regulation on the cost and availability of private passenger automobile insurance, specifically: (1) the differences in the methods that states use to regulate insurance rates and to ensure the availability of insurance; and (2) the experiences of states that have placed restrictions on the factors that insurers may use to establish different rates for different types of drivers.
GAO found that: (1) the cost of liability coverage under the average-inflation-adjusted premiums and average-premiums-per-dollar-of-losses was generally higher in states using competitive approaches to establish rates; (2) among states with compulsory insurance laws, average physical damage premiums were higher in competitive states; (3) there were no differences in physical damage premiums among states without compulsory insurance laws and no differences among the states in average-premiums-per-dollar-of-losses; (4) the overall extent of insurance coverage was greater in states with compulsory insurance laws but was unaffected by whether those states used prior approval or a competitive approach for establishing rates; (5) in competitive-rating states, insurance companies voluntarily insured more drivers; (6) in states where the driver's age or sex could prohibit premium differences, insurance companies used other factors, such as driving records, to establish premium levels; (7) in some states, the proportion of young male drivers who had to obtain coverage through state auto plans increased; and (8) one state encountered serious problems when it restricted allowable premium differences among geographical areas and, therefore, rescinded those restrictions.
