A General Accounting Office analysis of state regulation of automobile insurance rates is described. In most states, companies set their own rates without approval, the presumption being that competition can assure the fairest price. Although the insurance industry is competitively structured, important limitations on competition exist. Consumers are limited in their knowledge about insurance due to lack of publicity concerning differences in price and quality among companies and to the obfuscatory language of most policies. Competition in the insurance business differs from that of other businesses in that companies compete to get the best risks and to avoid the worst ones. The insurance market cannot be regarded as a free market because insurance is compulsory in half the states and is generally required to finance a car. Because of these limitations, regulation of the automobile insurance business is justified. Very little difference exists between the cost of insurance in price-regulated states and those with open competition systems. Other factors, such as the size and resources of the state insurance department, explain the difference among the states in insurance price. It is suggested that regulation be channeled toward facilitating the competitive potential of the automobile insurance market. It is proposed that the states require insurance policies to be readable, that frequent detailed comparisons of companies be made available, and that insurance departments publicize the relative number of complaints against companies. In these circumstances, consumers would be better served by the absence of price regulation. A controversial price determinant is the classification system based on driver age, sex, marital status, and residence. Some states are considering proposals to ban its use and three states have already done so.

  • Corporate Authors:

    U.S. General Accounting Office

    441 G Street, NW
    Washington, DC  United States  20548
  • Authors:
    • Nadel, M V
  • Publication Date: 1980

Media Info

  • Features: References;
  • Pagination: p. 29-32
  • Serial:
    • GAO Review
    • Publisher: U.S. General Accounting Office

Subject/Index Terms

Filing Info

  • Accession Number: 00386132
  • Record Type: Publication
  • Source Agency: National Highway Traffic Safety Administration
  • Report/Paper Numbers: HS-029 176
  • Files: HSL, USDOT
  • Created Date: Jun 28 1984 12:00AM