Category Archives: Personal auto

Where fraud lives

I used to live in Florida, so no surprise here:

State investigators are considering criminal charges after finding regulatory violations in almost 90 percent of the pain clinics that treat automobile accident victims in Miami-Dade County.

A three-day sweep found irregularities in 43 of 49 clinics investigated in a three-day sweep.

During those checks, investigators witnessed only 17 patients while employees at some clinics reported they had never seen a patient. At one clinic, staff said they had not seen the owner or medical director in six months.

 

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Allstate’s actuarial astrology

So today I prove that actuaries can ruin any joke.

Last week, Allstate tapped its mighty database to figure out which sign of the Zodiac had the best drivers. The results, according to a company press release:

Virgos, known to be critical, meticulous and reserved, are also more likely to get into a car accident, according to Allstate Insurance, which recently compared claims data against the recently “revised” zodiac calendar.

Over the past year, Virgos were nearly 700 percent more likely to be in a car accident when compared to the determined and aware Scorpio, the best drivers in the study. Perhaps a Virgo’s shy, perfectionist nature leads to overly cautious and timid driving habits. By contrast, Scorpios were only involved in 1.5 percent of all accidents in 2010.

Apparently customers took it seriously, because a few days later. . .

“We recently issued a press release on zodiac signs and accident rates, which led to some confusion around whether astrological signs are part of the underwriting process,” said the insurer, in its retraction. “Astrological signs have absolutely no role in how we base coverage and set rates.”

Allstate also said, “We deeply apologize for any confusion this may have caused.”

[snip]

The data that Allstate used was real, based on the birthdays of customers actually involved in accidents. But the company’s conclusion was tongue in cheek.

“Rating by astrology would not be actuarially sound.”

Now that’s pretty funny. (H/t to reader JN.) But being an actuary, I’m going to un-funny things a bit. Continue reading

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California: Voters reject rating variable

Here are results for Proposition 17, which would have let auto insurers grant discounts to people who have been insured for a long time at any company. (Currently insurers can only discount their own longtime customers.)

As I write this, 98% of precincts have reported, and the gap is 150,000 votes. I’m no political scientist, but it sounds like there are less than 150,000 votes left to count, so I’m calling it.

I’m basically indifferent on the issue, though I think it is a bit silly to have a referendum on a rating variable. I mean, I didn’t get to vote on whether airlines could surcharge for checked baggage. Why should insurance be so different?

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California Proposition 17: An actuarial view

I’m not big on California’s micromanagement of laws via referendum in general, but one measure being voted on Tuesday involves personal auto rates, so I thought it was worth a mention.

Thanks to Proposition 103, California restricts rating factors. There are three primary factors and 16 secondary factors. One of these is relevant here. Companies can grant a persistency discount – the longer you are a customer, the more you save. Proposition 17 would extend this. A company could offer a discount based on your longevity in the system, regardless of which company you stayed at.

CAS Exam 5 (ratemaking) students will remember the persistency discount from Sholom Feldblum’s paper on Asset Share pricing. An auto insurer can offer a discount to long-term customers because they don’t have a lot of accidents. The reason is a bit clearer if you look at the converse. A driver who is in a lot of wrecks either gets dropped or gets hit with a big rate increase. Both events turn him into an active shopper.

If you don’t get in any accidents, you and all the other good drivers have been profitable, and as time passes, the company can confidently lower your rate and still get an adequate return. And it would rather do that than lose you, because you are a better risk than most insurance shoppers who, recall, are likely to have poor driving records.

(An aside: Health insurance is the opposite. Loss ratios drift higher with longevity, at least with individual plans. The longer you live, the more likely you are to get sick.)

But Proposition 17 would allow a company to offer a discount if a driver has been at a competitor for a long time. Mercury Insurance Group is the big force behind the referendum, spending $10 million on it.

Proponents say most consumers will save money. Opponents point out, in essence, that every dollar one consumer saves will be a dollar another consumer pays and contends the people who would pay more – say a laid-off worker who lets his policy lapse – are not able to afford it.

I don’t have a strong feeling, but my thought experiment runs this way: The current system favors entrenched players. It’s going to be pretty hard to pluck a good customer away from State Farm or Allstate if the law allows them to offer a discount that competitors cannot.

Balanced against that is the uninsured motorist problem. The proposition could shift costs onto the recently unemployed or longtime mass transit users, both of whom make less than median income. The high cost makes them less likely to buy insurance at all, which is a genuine social concern. Eighteen percent of California drivers are uninsured, eighth worst in the United States. (The national average is 13.8 percent.)

Anyhow, the state’s description of the initiative is here. A supporter’s view is here. An opponent’s view is here.

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