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35 Ins. Counsel J. 398 (1968)
Automobile Liability Insurance Rates

handle is hein.journals/defcon35 and id is 404 raw text is: INSURANCE COUNSEL JOURNAL Automobile Liability Insurance Rates DANIEL J. McNAMARA New York, New York T HE IMPACT of the automobile on the American public has stimulated keen current interest in a number of facets of insurance relating to this subject. The system under which indemnification is pro- vided to the motoring public in the United States is being questioned increasingly by consumers, by lawmakers and jurists, and by insurance people. The most widely voiced concern is the high and. ever-rising price paid by insureds, particularly by the owners of private passenger cars. This paper was prepared to outline basic procedures currently used in ratemaking for automobile liability insurance. While ratemaking is a technical field requiring people trained in actuarial work, there is need for a better understanding of it be- yond the circle of actuaries. The paper may also serve as a springboard to evaluate the many changes that are currently being advocated - for economic, political or so- cial reasons - for this line of insurance. Regulation of Rates As is the case with any business in the United States, excepting such monopolistic enterprises as public utilities, automobile insurance companies compete with each other through price or through service, or through both of these elements of buyer appeal. This competition acts as a power- ful and self-acting regulator of the price of automobile liability insurance. In addition, the making of rates for automobile liability insurance - or, if you will, the pricing - is regulated by laws passed in the various states. These laws establish the standards that rates have to meet and they set forth the prerequisites for the proper administration of the rate regulatory function. The statutory standards established by the states for rates are defined usually by this precept: Rates shall not be excessive, inadequate or unfairly discriminatory. While the statutes in the several states may use different language, the broad concept DANIEL J. MCNAMARA, a graduate of Fordham Col- lege and Fordham Law School, is assistant gen- eral manager of the In- surance Rating Board. An attorney admitted to practice in the State of New York, he serves on the American Bar Asso- ciation's Committee on Public Regulation of the Business of Insurance. He is a Fellow by examina- tion of the Casualty Ac- tuarial Society and is currently serving as its Vice President. He is also a member of ASTIN (Actuarial Studies in Non-Life Insurance) Section of the International Congress of Actuaries, and a Member of the Board of Directors of the Ameri- can Academy of Actuaries, where he serves on the Committee of State Accreditation. embodied in this phrase governs the mak- ing and the regulation of rates generally. The means by which the statutory re- quirements are met are also broadly de- fined in the statutes; again with some ex- ceptions, most states require that, in the making of rates: Due consideration shall be given to past and prospective loss experience within and outside this state, to catastrophe hazards, if any, to a reasonable margin for under- writing profit and contingencies, to divi- dends, savings or unabsorbed premium deposits allowed or returned by the insur- ers to their policyholders, members or subscribers, to past and prospective ex- penses both countrywide and those spe- cially applicable to this state, and to all other relevant factors within and outside this state. To achieve the statutory standards, data must be generated in the detail of a rating system which recognizes differences by in- dividual state, by subdivision within state, and by classification of risk. The country- wide and state data of the Annual State- ment of insurance companies do not suffice since it lacks such essential detail. These Page 398 July, 1968

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