When state Rep. David Morales submitted legislation in February that would prohibit auto insurance companies from using any information other than driving records when calculating premium rates, he was prepared for an uphill battle.
Similar legislation went nowhere last year.
Within days of his submission this session, he heard skepticism from General Assembly members, even from some progressive allies. Morales, D-Providence, says the insurance lobby had been working the room.
“The auto insurance industry and the [business groups] are doing a decent job talking to people [to convince them] why this would be harmful,” Morales said. “Unfortunately, they hold a lot of influence within the legislature.”
Rhode Island drivers, mandated by law to have car insurance, pay some of the highest premiums in the country. But costs can vary depending on criteria such as ZIP code of the policyholder, income, education levels, gender, credit history and marital status.
Morales says the current regulations are discriminatory, and policyholders – especially those in urban areas – are being punished for things outside of their control.
The legislation submitted by Morales – H5659 – would prohibit insurers from using education level, race, ethnicity, disability, occupation, income, gender, ZIP codes or census tracts to determine premiums or eligibility for coverage.
Rep. Enrique Sanchez, D-Providence, submitted a similar bill this session, H5336.
The measures are modeled on a law that took effect in Michigan in 2020 that eliminated many nondriving factors in setting premiums.
Disparities aside, insurance rates are set to jump on average another 7% in 2023, according to a report by the financial website Value Penguin. Rhode Island also ranks among the highest in the country for repair costs, which have risen 39% since 2016.
Morales has received complaints from constituents struggling with affordability in Providence’s Mount Pleasant, Valley and Elmhurst neighborhoods.
“We already have some of the highest insurance rates in the entire state. So that means that people in our neighborhood are paying disproportionately more than folks in other parts of the state and even other parts of Providence,” he said.
Insurance companies say the proposals would only shift costs from one demographic to another. The pricing models are based on sound actuarial science, they argue, and policy discrimination would violate Rhode Island law.
Morales’ bill received a hearing before the House Corporations Committee on Feb. 28. Elizabeth Dwyer, interim director of the R.I. Department of Business Regulation and the agency’s superintendent of banking and insurance, testified that the use of race or ethnicity in setting prices is already prohibited.
But the data showing pricing disparities is hard to ignore. A 2017 study by the Consumer Federation of America analyzed auto insurance premiums charged by 10 of Rhode Island’s largest auto insurers and found “dramatic” pricing differences based on nondriving factors.
Supporters of the legislation, including the American Civil Liberties Union of Rhode Island Inc., Rhode Island Commission on Human Rights, and the CFA point out that two policyholders within a mile of one another can pay wildly different rates.
Other than driving history, many insurers use geographic and demographic data to set premiums, including aggregate traffic accidents and population density. Some include crime rates in the algorithms, one of many characteristics that “serve as proxies for income and race,” Michael DeLong, a CFA research and advocacy associate, said in written testimony.
West Warwick resident Don Budman bought a new car in 2020 and took out a policy with Geico Insurance Agency LLC for $72 per month. His premium was recently raised to $117, despite having no accidents or moving violations. When he lived in Coventry, his policy was less than $600 annually but was raised 44% after moving to West Warwick.
Budman is disabled and drives about 7,900 miles a year, about half of the mileage logged by the average motorist, according to the latest figures from the Federal Highway Administration. “It’s a constant struggle,” he said. “But we have no choice but to pay it.”
Opponents of limiting pricing criteria only to personal driving records say the legislation could harm the ratepayers it’s intended to protect. John O’Brien, a lobbyist with the American Property Casualty Insurance Association, said the bill could have many unintended consequences.
He cites studies showing minorities are subject to traffic stops at higher rates as one example. Traffic tickets are a factor in setting insurance premiums.
“It would require the auto insurance companies to only focus on one thing, to the exclusion of everything else,” he said. “People are better off when we are able to take into consideration a wide range of factors.”
The Rhode Island Business Coalition sent a letter to the House Corporations Committee arguing the legislation would stifle competition and that excessive regulation could lead to companies choosing to exit Rhode Island.
“Fewer competitors usually lead to higher prices for everyone,” the coalition wrote.
Both bills were “held for further study,” which some view as a euphemism for legislative purgatory. But Morales is confident he can persuade the leadership to bring a vote to the floor.
“Even if it doesn’t pass, I believe it is worthwhile to further scrutinize the pricing models that these companies use,” he said. “[It’s not] a radical idea that insurance companies see less profits. They don’t have to lower rates for one population and then raise them on another.”
More factors are promoting what economist call price discrimination. Not in the negative sense of the word, but in the technical sense. Essentially, if all Rhode Island drivers have an aggerate risk valued at an amount that we can call X, instead of splitting that X the number of drivers N, they are saying they have some models that assign higher parts of X to certain drivers. Compare this to the way we price electricity where we all basically pay the same amount even though rural consumers cost demonstrably more to power. We love to use tools of price discrimination when Black and Brown people pay their “fair share”. They should be forced to have their models evaluated and approved by a public regulator.