The debate continues over a controversial Consumer Federation ofAmerica report released last month holding that only throughCalifornia's Proposition 103 has the state managed to control thecost of auto insurance—implying that in most other states,oversight of auto insurance is lax, and rates are therefore toohigh.

In a conference call with reporters, J. Robert Hunter, CFAdirector of insurance, today challenged what he called theindustry's “rapid-response style, multiple critiques of thestudy.”

Hunter said, “Rather than confront the facts, the insuranceindustry is throwing the kitchen sink at our report hoping to steerregulators, policymakers and the public away from the verycompelling data that show how good regulation of insurancecompanies provides the best results for consumers by lowering ratesand enhancing competition.”

The report studied auto insurance rate regulation in every stateand found that over the past 25 years auto insurance expendituresin America have increased by 43 percent on average, with the medianstate, Wisconsin, jumping 56 percent.

In Nebraska, rates rose by as much as 108 percent. Theseincreases occurred despite substantial gains in automobile safetyand the arrival of several new players in the insurancemarkets.

Only in California, where a 1988 ballot initiative “transformedoversight of the industry and curtailed some of its mostanti-consumer practices,” did insurance prices fall during theperiod, the CFA report found.

The report said CFA found that the amount that drivers spend onauto insurance in California declined by 3 tenths of one percent,resulting in billions of dollars of annual savings.

The industry has challenged the report's findings.

The Insurance Information Institute said in a reaction thatfactors other than Proposition 103 played a role in lowering rates.I.I.I. said that a competitive market, less litigation and safervehicles have made auto insurance coverage in California, andelsewhere, more affordable for drivers.

“The Insurance Information Institute calculated last year thatannual auto insurance expenditures for the typical U.S. driver roseonly 4.2 percent between 2002 and 2012, even as the Consumer PriceIndex (CPI) over these same 10 years grew by 27.6 percent,” RobertHartwig, president of the I.I.I., said.

Indeed, Robert Detlefsen, vice president of public policy forthe National Association of Mutual Insurance Companies, chargedthat the report reinforces CFA's “well-deserved reputation formanipulating statistics and omitting critical information to reachpre-fabricated conclusions.”

Detlefsen cited several examples which he said demonstrated whythe report's data and analysis cannot be considered reliable,noting that the CFA report claims that “the average expenditure onauto insurance” country-wide increased by 43.3 percent between 1989and 2010.

“CFA doesn't say whether this percentage increase is adjustedfor inflation, nor does it indicate whether the 'averageexpenditures' mentioned throughout the report are per policy, percapita or per household,” Detlefsen said.

Detlefsen added that the price of the average vehicle roseconsiderably between 1989 and 2010, as did the number of cars ownedper household and even per capita. As the total insured value ofautomobiles increased, he said “it stands to reason that the amountspent on auto insurance would increase as well.”

He also said the report fails to consider the most importantdeterminant of auto-insurance prices: claim costs. “Consequently,the reader has no way of assessing the extent to which theincreases in the amount spent on auto insurance in any given statecan be attributed to increases in insurers' claim costs in thatstate,” Detlefsen said.

Robert Passmore, senior director of personal lines policy forthe Property Casualty Insurers Association of America (PCI),said, “Opponents of competition-based rating systems such asthe Consumer Federation of America have the misguided impressionthat prior-approval systems keep insurance rates down. However,National Association of Insurance Commissioners (NAIC) datademonstrates that on average states with competitive-basedregulatory systems have the lowest average annual premiums whencompared to the countrywide average and states with prior-approvalsystems.”

The data, he said, shows preliminary average annualpremiums (2010) as: competitive-based states (includingFlex-Rating), $901.15; prior-approval states $921.62; allcountrywide $907.38.

Passmore adds, “Although the CFA highlights California andProposition 103, this type of regulatory approach is not a recipefor success. In reality insurers have been able to function despitethe stringent, bureaucratic prior-approval rate regulation system.California's competitive auto insurance market is actually theresult of a series of tort reform ballot initiatives and courtdecisions coupled with improvements in highway safety and automanufacturing as well as California drivers' continued high use ofseat belts which lowered the cost of providing insurance, thereforelowering insurance premiums.”

CFA, in its report, said that on the 25th anniversary ofProposition 103, it had found that the proposition delivered over$102 billion in savings for California's motorists, an averageannual savings of $345 per household, or $8,625 per family over theentire period.

CFA's Hunter said that that this was the result of strongregulatory oversight and a more competitive market fostered by the1988 insurance-reform measure.

In the report, CFA looked at each state and evaluated thevarious types of insurance-regulatory regimes found across thecountry. Using this data, CFA identified best practices from aconsumer-protection perspective.

CFA said that, on insurance costs, it found that the states withthe highest average expenditure on auto insurance are Nebraska,Louisiana, Montana, Wyoming and Kentucky; and the states with thelowest increases are Hawaii, New Hampshire, New Jersey,Massachusetts, and Pennsylvania.

As to regulation, the CFA report found that the prior-approvalsystem of regulation, in which insurers must apply for rate changesbefore they can be imposed in the market, is most effective atkeeping rates low; markets that are less or not regulated tend tohave the most substantial increases; that the prior-approval25-year increase was 48 percent, the File and Use system was 60percent, the Use and File system was 62 percent, the FLEX systemwas 67 percent and the deregulated system was 70 percent.

“While mildly and strongly regulated states tend to have very orsomewhat competitive markets for auto insurance, deregulated andflexible-rating states have the least competitive markets,” thereport found.