Auto Insurance Savings in Doubt

Lawmaker's analysis shows tort system hasn't delivered



By John Accola, Rocky Mountain News

September 22, 2005



A double-digit price reduction promised by Colorado auto insurers two years ago never materialized, with 80 out of 200 carriers filing for rate increases after the state dropped its no-fault law.



An analysis presented Wednesday by Rep. Morgan Carroll, D-Aurora, found 24 percent of insurers made no reductions since the switch to a tort system.



Overall, Carroll said, rates dropped about 4 percent - not the 15 percent to 30 percent price break touted to Colorado lawmakers who voted to change the state from a no-fault to a presumably lower-cost tort insurance system.



"The bottom line . . . something is funky if your rates weren't reduced by at least 15 percent," Carroll said following a committee meeting with Colorado Insurance Commissioner David Rivera.



The July 2003 switch meant drivers no longer had to carry additional medical insurance, effectively dropping more than $100,000 in coverage for medical treatment and rehabilitation. Under a tort system, the at-fault driver's insurer pays for treatment of car accident injuries.



Carroll, a member of the legislative committee reviewing auto insurance, had asked Rivera to conduct the broad-based rate study. Although Rivera declined, his office provided Carroll with the raw data.



She began her number crunching several weekends ago in hopes of persuading the commissioner to investigate insurance carriers who failed to reduce their insurance prices or used what she called "accounting tricks" to feign reductions.



"An investigation can be something as simple as a phone call," Carroll said. "The public has a right to know."



Among her findings were 30 carriers that increased rates just before the July 1, 2003, switch and later filed for slight decreases.



Federal Insurance Co. and Great Northern Insurance Co., for example, both applied for 43.4 percent premium increases just before the new system went into effect, then applied for 4.5 percent reductions.



"Is that a savings?" Carroll asked Rivera.



Rivera, however, stood by the rosier findings of a previously released insurance division study indicating premiums have dropped significantly.



That study, while limited to just 24 insurers, represents more than 50 percent of the Colorado market, he said. The study convinced the division that on average, consumers are saving between 15 percent and 27 percent.



In addition, Rivera said his office reviewed and rejected rate requests of some insurers, resulting in $3.6 million worth of reduced premiums to Colorado consumers.



"Not everyone will save money, but many will, under the new system," he said.



In the competitive marketplace, consumers can freely pick and choose their insurers, and Rivera urged them to do their homework.



"We encourage consumers to speak with their insurance agent to find the best deal possible," he said.



Insurance division spokesman Geoff Hier said the division isn't disputing the figures in Carroll's study.



"There's just a difference in methodology," he said. "I'm saying we rely on the research done by actuaries who are trained and educated in insurance analysis."



Carroll, a public interest attorney, said she relied on a home computer and an Excel software program to complete her rate study. She criticized the narrower insurance division study for "cherry picking" insurance carriers and conducting an exercise in "managed data."



"Clearly there are a lot of carriers that did what they said they would do," she said. "But why are there so many insurance companies that didn't reduce anything, not one dime? What is going on?"



Rivera contends investigating companies that haven't cut rates by at least 15 percent would be a waste of the division's resources.



Unlike in some states, when a carrier files for a rate increase in Colorado, the division must conduct a "diligent upfront review," Hier said.



"It's reviewed to make sure it's not inadequate, excessive or discriminatory," Hier said. "One of the things we don't want to happen is have an insurance company charging an inadequate premium to get a bigger market share and then not be able to pay the claims when they come in because they aren't collecting enough money."



Promised premium reductions



• 15 percent to 30 percent lower premiums were promised when auto insurance changed from no-fault to tort on July 1, 2003.



• 3.86 percent is the average decrease in rate filings.



• 15 out of 200 insurance carriers met the 15 percent rate decrease without filing rate hikes just before the switch from no-fault to tort on July 1, 2003.



• 61 out of 200 insurance carriers filed rate reductions after the switch.



• But 30 of those 61 carriers had filed rate increases just prior to July 1, 2003.



• 48 out of 200 insurance carriers made no reductions in rate filings after the switch.



• 80 out of 200 insurance carriers filed rate increases after the switch.