Territorial Auto Insurance Rating Issue Underscored by New Legislation

Mar 08, 2011, 08:00 ET from Online Auto Insurance, LLC

HOUSTON, March 8, 2011 /PRNewswire/ -- A new bill recently introduced to the Connecticut state legislature is reigniting discussion over a somewhat controversial practice used by car insurance companies nationwide. The practice is known as territorial rating, and the sponsors of the new bill want insurers in their state barred from using it when deciding how much to charge residents for coverage.  

When legislative researchers were asked in 2004 to quantify the issue through an auto insurance comparison of costs across Connecticut, they found that rates sometimes fluctuated so widely based on territory that, for example, motorists in the suburban part of the state's capital would be charged 37 percent less for the same policy when compared to residents living in other parts of the same city.  

The reason for this is that insurance providers in Connecticut and every other state in the country are allowed to rate a driver in part based on the loss statistics of other motorists living in the same area.  Motorists in areas with good statistics get charged less. But if drivers in a given geographic area tend to file claims more frequently, or if claims filed by those drivers tend to be larger than those filed in other parts of the state, then they are likely going to be charged more for coverage.

Connecticut already has regulatory provisions in place that limit the effect of territory on a person's rates.  Insurers in the state are restricted to allowing a person's territory to constitute only 75 percent of the territorial rating factor, with the other 25 percent reflecting the loss statistics of the state as a whole. Without this provision, drivers in the urban areas of larger cities like Hartford, Bridgeport and New Haven would be paying around 10 percent more in premiums.

Source: http://cga.ct.gov/2004/rpt/2004-R-0410.htm

But the bill's authors—who represent Bridgeport—believe that this is not enough. While some contend that territorial rating is an objective, accurate predictor of risk, the pair of lawmakers says that charging urban residents more for the same policy is simply unfair.

To learn more about this and other insurance issues, readers can go to http://www.onlineautoinsurance.com/compare/ where visitors will find informative resources and a free-to-use quote-comparison generator that can help motorists find the best deal on a policy.

SOURCE Online Auto Insurance, LLC