NU Online News Service, June 18, 3:35 p.m.EDT

Consumer advocates and an industry representative disagreed onthe competitiveness of the auto-insurance industry after a consumergroup released results of an auto-insurance affordabilitysurvey.

The survey, covered in a Consumer Federation of America report,found that moderate-income residents in 15 major urban citiesstruggle to afford what insurers charge for state-mandated autoinsurance, depriving them of mobility and access to better-payingjobs.

According to CFA, in many cases, quotes amounted to more than$1000 a year in nearly half of the markets studied.

“There are numerous studies out, on a national basis, that haveidentified cars as the number one poverty fighting tool that we canprovide to a low-income family,” says Marty Schwartz, president ofVehicles forChange, which helps low-income families purchase anautomobile.

He says the association has awarded over 4,000 cars since 1999to people of low income, making an average of $18,000 a year inMaryland, Virginia and the District of Columbia. Once they have acar, these individuals are able to get out and find a job that canincrease their salary by $7,000 a year, he says.

In that context, CFA surveyed Progressive, State Farm, Allstateand GEICO to see how much auto insurance would cost for someone ina major city.

Stephen Brobeck, executive director of CFA, outlined the group'sprocess of seeking coverage in 15 cities for two hypotheticalconsumers—a man who is a 27-year old laborer, and a woman who is a35-year old bank teller. Both hypothetical consumers have cleandriving records, good credit ratings, are renting homes, and eachhas a median income of $30,000. Both are single and have highschool degrees.

In the 15 cities—Boston, Washington D.C.; Baltimore; Atlanta;Miami; Charleston, W.Va.; Louisville, Ky.; Chicago; Sioux Falls,S.D.; Denver; Houston; Phoenix; Las Vegas; Los Angeles and Oakland,Calif.—over half of the quotes were at least $1,000 and close totwo thirds were $1,500.

The study found that the man was quoted somewhat higher overallthan the older woman, but not by much. Fifty-seven percent of theman's quotes and 53 percent of the woman's quotes were at least$1,000.

Brobeck and Robert Hunter, director ofinsurance for CFA, argued that one thing the study indicates isthat there is a lack of competition in the marketplace.

True competition, they say, would mean that all the insurerswould be closer together in price, but in the some cities, theprice ranged from as low as $620 from GEICO in Charleston to $1596from Allstate for the man.

“This is not a very competitive market,” says Hunter, arguingthat many consumers are poorly informed about choice and trying tocompare rates is very time consuming.

Hunter suggested that a major reason the rates are so high inthese markets is because of territory, but other factors such aseducation, length of time driving may come into play.

Hunter notes that, according to the National Association ofInsurance Commissioners, the average price for liability insurancein the United States is $474, with New Jersey having the higheststate average of $750.

Brobeck says, “$700 is a lot to pay when someone has minimalamount of coverage.”

Responding to the CFA's study, Alex Hageli, director ofpersonal-lines policy for the Property Casualty InsurersAssociation of America, says he believes the study underscores thatthere is, in fact, significant competition between carriers.

“[CFA has] a different definition of competition than I do,”says Hageli. “If they were all the same price, then why shouldthere be three carriers? There would only need to be one.”

He agrees with CFA that lower-priced insurance options areneeded, through reduced limits. However, he says the best way toachieve that is to eliminate mandated coverage and allowfree-market principles to do the job.

However, there is no political will to changethe auto-liability laws in the states, he says.

“It is not going to happen because people have this idea thatthere has to be a law on the books for people to have insurance,”says Hageli.

Robert Detlefsen, vice president, public policy for the NationalAssociation of Mutual Insurance Companies was critical of the CFAsaying that it was not clear what information was given toinsurers, which could influence underwriting and it is also notknow if these carriers are major writers in these markets.

“If they wanted to make an intellectually honest study of howmuch insurance would cost consumers they would have called upindependent agents in these cities and asked them what was thecheapest insurance they could get,” says Detlefsen. “The results ofthis study would have produced numbers that would be very differentfrom what they got. It is flawed and intellectually dishonest.”

In a statement, James J. Whittle, assistant general counsel andchief claims counsel for the American Insurance Association says,“To be priced properly and avoid cross subsidies that distortmarkets, it's important that auto insurance rates reflect risk andwill often take into account multiple factors. For thosedrivers living in cities, these factors can include: the likelihoodof crime against motor vehicles, total number of accidents in agiven area, population density, parking accessibility and, ofcourse, a driver's personal driving record. Insurers arecommitted to ensuring that consumers receive the best rate andcoverage for their vehicle. Consumers are encouraged to shoparound, and ask question before determining which carrier is rightfor them.”

Robert Hartwig, president of the Insurance Information Institutesays in a statement that “The Consumer Federation of America wantsto know why the same person, with a good driving record, isreceiving price quotes that vary so widely. The answer is simple.The markets for auto insurance are highly competitive. In addition,the experience of insurers in these markets will differ, leadinginsurers to price the risk of a prospective policyholderdifferently.”

In noting the different prices individuals paid for insurance,he criticized the CFA for not pointing out or explaining that ratesin suburban areas are generally higher than they are ruralcommunities.

“More importantly, increases in the cost of auto insurancenationwide remain in line with the Consumer Price Index, rising byless than 3 percent so far in 2012,” Hartwig stated.

This story was updated at 5:18 p.m. EDT with comments fromRobert Hartwig.