[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]


               DRIVERS OF DISCRIMINATION: AN EXAMINATION
              OF UNFAIR PREMIUMS, PRACTICES, AND POLICIES
                     IN THE AUTO INSURANCE INDUSTRY

=======================================================================

                                HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON HOUSING,
                         COMMUNITY DEVELOPMENT,
                             AND INSURANCE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 4, 2020

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 116-89
                           
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


                                __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
42-865 PDF                  WASHINGTON : 2021                     
          
--------------------------------------------------------------------------------------


                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             ANN WAGNER, Missouri
GREGORY W. MEEKS, New York           FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri              BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            STEVE STIVERS, Ohio
ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
JIM A. HIMES, Connecticut            SCOTT TIPTON, Colorado
BILL FOSTER, Illinois                ROGER WILLIAMS, Texas
JOYCE BEATTY, Ohio                   FRENCH HILL, Arkansas
DENNY HECK, Washington               TOM EMMER, Minnesota
JUAN VARGAS, California              LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey          BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida                   WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam            TED BUDD, North Carolina
RASHIDA TLAIB, Michigan              DAVID KUSTOFF, Tennessee
KATIE PORTER, California             TREY HOLLINGSWORTH, Indiana
CINDY AXNE, Iowa                     ANTHONY GONZALEZ, Ohio
SEAN CASTEN, Illinois                JOHN ROSE, Tennessee
AYANNA PRESSLEY, Massachusetts       BRYAN STEIL, Wisconsin
BEN McADAMS, Utah                    LANCE GOODEN, Texas
ALEXANDRIA OCASIO-CORTEZ, New York   DENVER RIGGLEMAN, Virginia
JENNIFER WEXTON, Virginia            WILLIAM TIMMONS, South Carolina
STEPHEN F. LYNCH, Massachusetts      VAN TAYLOR, Texas
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota

                   Charla Ouertatani, Staff Director
                  Subcommittee on Housing, Community 
                       Development, and Insurance

                   WM. LACY CLAY, Missouri, Chairman

NYDIA M. VELAZQUEZ, New York         STEVE STIVERS, Ohio, Ranking 
EMANUEL CLEAVER, Missouri                Member
BRAD SHERMAN, California             BILL POSEY, Florida
JOYCE BEATTY, Ohio                   BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
VICENTE GONZALEZ, Texas              SCOTT TIPTON, Colorado
CAROLYN B. MALONEY, New York         LEE M. ZELDIN, New York
DENNY HECK, Washington               DAVID KUSTOFF, Tennessee
JUAN VARGAS, California              JOHN ROSE, Tennessee
AL LAWSON, Florida                   BRYAN STEIL, Wisconsin
RASHIDA TLAIB, Michigan              LANCE GOODEN, Texas, Vice Ranking 
CINDY AXNE, Iowa                         Member
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 4, 2020................................................     1
Appendix:
    March 4, 2020................................................    35

                               WITNESSES
                        Wednesday, March 4, 2020

Collins, Erin, Vice President, State Affairs, National 
  Association of Mutual Insurance Companies (NAMIC)..............    11
Dwyer, Elizabeth Kelleher, Superintendent of Insurance, the State 
  of Rhode Island, on behalf of the National Association of 
  Insurance Commissioners (NAIC).................................     8
Heller, Douglas, Insurance Expert, Consumer Federation of America 
  (CFA)..........................................................     4
Larkin-Thorne, Sonja, Consumer Advocate and retired insurance 
  executive......................................................     9
Poe, Eric S., Chief Operating Officer, CURE Auto Insurance.......     6

                                APPENDIX

Prepared statements:
    Collins, Erin................................................    36
    Dwyer, Elizabeth Kelleher....................................    46
    Heller, Douglas..............................................    51
    Larkin-Thorne, Sonja.........................................    71
    Poe, Eric S..................................................    77

              Additional Material Submitted for the Record

Clay, Hon. Wm. Lacy:
    Written statement of the American Property Casualty Insurance 
      Association................................................    99
    March 2007 report of Commissioner Kevin M. McCarty, Florida 
      Office of Insurance Regulation, entitled, ``The Use of 
      Occupation and Education as Underwriting/Rating Factors for 
      Private Passenger Automobile Insurance.....................   111
    Written statement of the Insurance Information Institute.....   138
    Written statement of the U.S. Chamber of Commerce............   141
Poe, Eric S.:
    Supplemental materials supplied after the hearing............   149

 
                       DRIVERS OF DISCRIMINATION:
                        AN EXAMINATION OF UNFAIR
                        PREMIUMS, PRACTICES, AND
                          POLICIES IN THE AUTO
                           INSURANCE INDUSTRY

                              ----------                              


                        Wednesday, March 4, 2020

             U.S. House of Representatives,
                           Subcommittee on Housing,
                             Community Development,
                                     and Insurance,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:04 p.m., in 
room 2128, Rayburn House Office Building, Hon. William Lacy 
Clay [chairman of the subcommittee] presiding.
    Members present: Representatives Clay, Sherman, Beatty, 
Maloney, Vargas, Lawson, Tlaib, Axne; Stivers, Posey, 
Luetkemeyer, Tipton, Zelden, Steil, and Gooden
    Ex officio present: Representative McHenry.
    Also present: Representatives Davidson and Budd.
    Chairman Clay. The Subcommittee on Housing, Community 
Development, and Insurance will come to order. Good afternoon, 
and welcome to our hearing.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time. Also, without 
objection, members of the full Financial Services Committee who 
are not members of this subcommittee are authorized to 
participate in today's hearing.
    Today's hearing is entitled, ``Drivers of Discrimination: 
An Examination of Unfair Premiums, Practices, and Policies in 
the Auto Insurance Industry.''
    I will now recognize myself for 4 minutes for an opening 
statement.
    Insurance marketing and advertising are ubiquitous. 
Everyone is familiar with the Geico camel, the Allstate mayhem, 
or NFL athletes selling auto insurance via colorful and often 
memorable ads. What is also widespread is the use of credit-
based insurance scores in the insurance industry. Most 
consumers are likely unaware that if they are behind on one of 
their bills due to injury or illness, this delinquency might 
negatively affect the premium that they pay for their auto 
insurance.
    The Federal Insurance Office (FIO) reported in 2017 that 
approximately 18.6 million Americans live in ZIP Codes in which 
auto insurance is deemed unaffordable. That report considered 
the average annual written liability premium for the 28 percent 
of American ZIP Codes that the Office deemed to be 
traditionally underserved communities.
    Auto insurance premiums, for example, are based in part on 
driving-related factors such as an individual consumer's 
driving record, but the use of such factors can raise questions 
about fairness. For example, racial profiling and other 
policing tactics that disproportionately target lower-income 
and minority communities could artificially increase traffic 
violations for certain consumers.
    Think of Ferguson, Missouri. In other words, not only is 
the police department discriminating against you, but then you 
are paying more for your insurance, simply because you were 
profiled.
    While the two do not seem to be related, the consequences 
of higher insurance premiums are quite profound, because then 
you have less money to save in order to purchase a home, send 
your children to college, or invest for your family's future. 
In short, they serve to exacerbate the racial wealth gap.
    And when auto insurance premiums utilize non-driving-
related factors such as a consumer's credit history, home 
ownership status, professional occupation, and education or 
attainment, communities of color tend to benefit less, based on 
the available research. The use of these factors also raises 
questions about fairness, because it does not have an obvious 
correlation to losses covered in an auto insurance policy. And 
because these factors can sometimes serve as proxies for 
socioeconomic status and race, some consumer and civil rights 
groups have pointed out the problems, going back many years, 
and we will soon hear testimony about these practices.
    Certainly, based on today's written testimony, the auto 
insurance industry does not intend for this result, but 
nonetheless it demands action on behalf of American consumers. 
The draft bill by my colleague, Congresswoman Tlaib, asks the 
Federal Insurance Office to study the possibility of disparate 
impact in auto insurance pricing. I am hopeful that we will 
learn from this conversation how we can ensure reasonable 
pricing for all insurance consumers.
    And I now recognize the ranking member of the subcommittee, 
Mr. Stivers, for 5 minutes.
    Mr. Stivers. Thank you, Chairman Clay, for convening this 
important hearing. I can say with great confidence that 
everyone in this room agrees that discrimination in all of its 
forms is abhorrent. It is also illegal.
    But tragically, our country has a lengthy history of 
redlining and other forms of discrimination in financial 
products. This history promoted landmark Federal legislation 
prohibiting discrimination, including the Fair Housing Act and 
the Equal Credit Opportunity Act. Because insurance products 
are primarily regulated by the States, I am grateful that we 
have somebody testifying on behalf of the National Association 
of Insurance Commissioners who will be able to speak to the 
history and what happened at the State level, as far as State 
laws and enforcement mechanisms designed to root out and 
eliminate discriminatory practices in the insurance industry.
    So, Mr. Chairman, I think this hearing is justified, and we 
should periodically examine what is going on with insurance 
markets and ensure that our State-based regulatory framework is 
working to protect policyholders and prevent discriminatory 
practices.
    Now, whether the legislation that has been posted for this 
hearing is justified, is another matter. Our subcommittee has 
considered several bills aimed at reducing the number of 
factors that insurers can use to assess risk, most notably the 
PAID Act, sponsored by Representative Bonnie Watson Coleman. 
That bill would restrict insurers from considering 11 different 
factors, while setting actuarily-sound rates. And I suspect 
that the PAID Act divided committee Democrats. Therefore, we 
are looking at a bill that our colleague from Michigan, Ms. 
Tlaib, has authored, that would eliminate one factor, and that 
is credit scores.
    But despite today's hearing being focused on a narrower 
bill, the underlying set of questions remains. First, should 
policyholders' premiums reflect their underlying risks? Second, 
does credit reporting information help predict the risk of an 
individual so they can set actuarily-sound rates for that 
individual? Lastly, do high insurance costs in Michigan, with 
its unique laws relating to personal injury protections, 
justify the Federal Government upending a State-based 
regulatory system that has successfully protected policyholders 
for decades?
    In assessing these questions, it seems to me that the 
underlying premise of this bill is flawed. Removing credit 
scores in assessment of risk will not resolve Michigan's self-
imposed affordability problems.
    But we will need to take a step forward, and I am excited 
to have this hearing to look into what is going on. I think we 
all want to do what we can to make sure that the system is 
properly underwriting the risk of individuals. And I am glad to 
hear that Michigan is actually taking up its problem with 
personal injury protection with State-based legislation to fix 
that problem, because as a neighbor to the south, I can tell 
you that insurance rates in Ohio are much, much more affordable 
than they are in Michigan, and our demographics are very, very 
similar. So, I am glad that Michigan is taking up their own 
problem.
    Mr. Chairman, I do appreciate you calling this hearing, and 
I really look forward to hearing from the witnesses.
    I yield back, Mr. Chairman.
    Chairman Clay. The gentleman from Ohio yields back. I now 
recognize the gentlewoman from New York, Mrs. Maloney, who is 
also the Chair of the House Committee on Oversight and Reform, 
for 1 minute.
    Mrs. Maloney. I thank the chairman for calling this very 
important hearing on the impact of discriminatory practices in 
the auto industry, especially on lower-income and minority 
communities. This cannot be discounted. It is very serious. 
There have been studies which found that on average, a good 
driver in a predominantly African-American community will pay 
considerably more for State-mandated auto insurance coverage 
than a similarly-situated driver in a predominantly white 
community.
    This is serious discrimination. There are often subjective 
calculations, and discriminatory practices can rob hard-working 
Americans of the economic mobility that they desperately need. 
I believe this hearing is incredibly important. There are 
factors that insurance companies use to calculate premiums, 
like insurance scores based on credit scoring, and the use of 
non-driving factors has been proven to disproportionately 
impact low-income and minority communities.
    This is a serious challenge. I am pleased that the chairman 
is working on this, and I am here to work with you on 
legislation and other actions you think may be necessary. I 
yield back. Thank you.
    Chairman Clay. The gentlewoman from New York yields back.
    Today, we welcome the testimony of: Douglas Heller, 
Insurance Expert, Consumer Federation of America; Elizabeth 
Kelleher Dwyer, Superintendent of Insurance, the State of Rhode 
Island, on behalf of the National Association of Insurance 
Commissioners; Eric Poe, Chief Operating Officer, CURE Auto 
Insurance; Sonja Larkin-Thorne, Consumer Advocate--it says in 
parentheses, ``retired,'' but I don't believe that.
    [laughter]
    And finally, we have Erin Collins, Vice President, State 
Affairs, National Association of Mutual Insurance Companies.
    The witnesses are reminded that your oral testimony will be 
limited to 5 minutes. And without objection, your written 
statements will be made a part of the record.
    You will each be recognized for 5 minutes to give an oral 
presentation of your written testimony.
    We will start with Mr. Heller for 5 minutes.

    STATEMENT OF DOUGLAS HELLER, INSURANCE EXPERT, CONSUMER 
                  FEDERATION OF AMERICA (CFA)

    Mr. Heller. Chairman Clay, Ranking Member Stivers, and 
members of the subcommittee, thank you for the opportunity to 
present testimony today.
    I am Douglas Heller, an insurance expert for the Consumer 
Federation of America, and for reference, I am also an 
appointee to the Federal Advisory Committee on Insurance, and 
the California Automobile Assigned Risk Plan.
    Since the purpose of auto insurance is mandated by law in 
almost every State, we believe government has a special 
obligation to ensure that insurance is available, affordable, 
and priced fairly in the marketplace. However, in most States, 
the market for auto insurance is not fair for low- and 
moderate-income consumers and in communities of color, even if 
the drivers have a perfect driving record.
    The data I will share today comes from recent testing that 
CFA conducted that reviewed online premium quotes from one of 
the nation's largest auto insurers. Each quote represents the 
cost of a minimum coverage policy for a 35-year-old driver with 
a clean driving record, and each is for a driver who lives at 
the same address, drives the same car, and has the same daily 
commute.
    The first test was for a man who is an investment banker 
with a graduate degree. He owns his home and he has been 
insured for the past 3 years. The insurance company quoted him 
a premium of $718 for 6 months.
    I then tested the same driver, except instead of a male 
driver, I asked for the price for a female driver. The basic 
liability policy increased for her to $813, a 13 percent gender 
tax on women. If instead of having a master's degree, she only 
has a high-school diploma, her premium jumped another 5 percent 
to $852. And when I changed her to a renter instead of a 
homeowner, still at the same address, her premium increased 
another $84, to $936 for 6 months.
    And then finally, if instead of an investment banker, she 
is a supermarket cashier, she will now pay $1,079 for the same 
coverage that the highly-educated male investment banker got 
for $718, even though they both have been accident- and ticket-
free for all 20 years they have been driving.
    All told, in order to comply with the law each year, this 
working-class woman must come up with $722 more than the 
socioeconomically advantaged man.
    Now, while no insurance companies formally base rates on 
income, many use these various proxies for income as tools to 
slice and dice and price consumers in a way that consistently 
leaves lower-income drivers with good records subsidizing much 
less expensive premiums for financially secure customers.
    These premiums I quoted didn't include the effects of two 
other non-driving factors, credit history and current insurance 
status, that can account for hundreds and even thousands of 
dollars in surcharges. In all but three States, auto insurers 
use credit-based scores to determine premiums, and the 
following Consumer Reports data from Florida corresponds to 
what we see in most States.
    In Florida, a safe driver with excellent credit paid $1,409 
per year, on average, for insurance. However, if the same 
driver merely had a good but not excellent credit rating, the 
premium jumped by $312. And the same driver with poor credit 
paid $3,826 for the same coverage that the excellent credit 
driver got for $1,409. That is a 172 percent rate hike for poor 
credit, and it means that two-thirds of the total insurance 
premium is attributable to their credit history, even when 
their driving history was impeccable.
    But nothing highlights the problem quite like one finding 
from Consumer Reports: In most States, the impact of having 
poor credit is greater than the impact of a drunk driving 
conviction. In Florida, a safe driver with a poor credit score 
paid $1,552 more for auto insurance--that is 68 percent more--
than a convicted drunk driver who happens to have excellent 
credit.
    The last driver of discrimination that I will talk about is 
the surcharge for a break in coverage. This break could mark a 
period in which the customer was driving uninsured, or maybe 
didn't have a working vehicle, or it could even be that they 
did not carry coverage while they were deployed overseas.
    Returning to the supermarket cashier, we said that instead 
of having insurance for the past 3 years, she is not currently 
insured because she has not needed coverage, and her premium 
jumped 41 percent. When we tested a member of the National 
Guard, who selected the pull-down menu option on the insurance 
company's website that said, ``I am not insured because I was 
deployed,'' he was charged $213 more on a 6-month policy. That 
is a 25 percent penalty for his service. And in our research, 
we have found evidence of this patriot penalty in at least 21 
States.
    Mr. Chairman, we are very grateful that you have begun 
assessing the unfair situation that the poor face when buying 
State-required auto insurance due to their socioeconomic 
status, and as you expose this new form of redlining, it will 
become more and more clear that action is required to rectify 
these discriminatory practices. And we particularly appreciate 
the work of Representatives Tlaib and Watson Coleman for their 
leadership on this issue.
    Thank you.
    [The prepared statement of Mr. Heller can be found on page 
51 of the appendix.]
    Chairman Clay. Thank you. Mr. Poe, you are now recognized 
for 5 minutes.

 STATEMENT OF ERIC S. POE, CHIEF OPERATING OFFICER, CURE AUTO 
                           INSURANCE

    Mr. Poe. Thank you, Chairman Clay and subcommittee members, 
for having me here. My name is Eric Poe. I am the chief 
operating officer for CURE Auto Insurance, a direct writer, 
not-for-profit auto insurer in the States of New Jersey and 
Pennsylvania that does not employ the use of credit scores, 
education, or occupation, but will be forced to adopt credit in 
the next year due to competitive reasons.
    As the original insurance whistleblower that has crusaded 
against this practice for the last 15 years, testifying across 
this country, and particularly 12 years ago, I was before this 
Financial Services Committee on this issue, I have not received 
warm welcomes from my industry at trade luncheons, but I have 
won over my conscience on how we do business.
    In my limited time here today, I want to quickly address 
two questions that are fundamental to this subcommittee: first, 
why does the industry use socioeconomic rating factors; and 
second, how do they actually get this in front of, and passed 
by, regulators throughout the State? And then in summary, I'll 
talk about what the unintended consequences are in this country 
when we use these socioeconomic rating factors, and what would 
happen if we actually support the ban in the PAID Act.
    Starting with why, there are two subcategories of why the 
industry does this. First, the oldest reason in America, for 
profit and greed. The reality is that higher-income drivers 
produce the highest profits for our industry. Therefore, any 
proxy that has anything to do with income will produce the same 
results. If you run a business and you want to make a profit, 
of course you are going to adopt practices that give you the 
biggest profits.
    Second, data mining. Unbeknownst to most people in the 
room, if you simply get a quote for car insurance on Geico and 
you never even buy a policy through Geico, in their terms and 
conditions, you agreed to allow them to run your credit report, 
how often you actually make payments on your lease payments, et 
cetera, and they actually can share it with every marketing 
partner they have.
    So moving on to the how, and to get to the how, before I do 
that, I want to share with you the results of the largest study 
ever done regarding occupations. In this country, in the year 
2000, there was a million-policy study of occupational groups 
outside of students. The three highest propensity of getting in 
a car accident in this country were doctors, attorneys, and 
architects. And that flies in light of the notion that these 
are valid predictors of risk.
    So, ask yourself, how do we get these factors used in every 
State that we write this business, in terms of the insurance 
industry, and that is because they have done a successful job 
of redefining the word, ``risk.'' If you look at every single 
State in this country, you are not allowed to adopt factors 
that don't show a valid predictor of risk.
    What the industry has done successfully over the last 30 
years is redefine what does that risk mean, by using a term 
called, ``loss ratio.'' Loss ratio is simply a measurement of 
profitability. For the industry, if I say that I have a loss 
ratio of 90 percent, that means I actually make 10 cents on 
every dollar that I collect.
    So what they have done is, they have taken factors and they 
have provided studies that showed that these factors correlate 
to loss ratios. Those loss ratios are simply saying that they 
are more profitable. So yes, any variable that ties to income 
is going to show loss ratios that correlate to those factors, 
but they are not dealing with the risk of somebody driving 
unsafely on the road.
    In terms of the impact that this has on the country, we can 
look at the State of New Jersey. In the year 2003--there 
wasn't, for 30 years, a mandated insurance in the State of New 
Jersey. There wasn't a single car insurance company that was 
allowed to use credit scores, education, or occupation at all. 
So, we can look at that State as an isolated State.
    Since 2004, since they let credit scores, education, and 
occupation in the State of New Jersey, bringing in Geico and 
Progressive, two things have happened. Geico is now the largest 
writer of car insurance in New Jersey, collecting $1.7 billion 
annually, in just New Jersey alone, and Progressive is not too 
far behind.
    But more importantly to this subcommittee is that the 
uninsured motorist rate in the State of New Jersey has gone up 
90 percent in 15 years. So if you want to know what the impact 
is, we could look at New Jersey for what that does country-
wide.
    Now, what would the impact be in terms of banning this 
country-wide? Simple. Don't let my industry convince you that 
this is going to make rates go up for everybody. It doesn't 
make any sense. People, we are not talking about banning the 
use of seat belts and headlights and blinkers. We are talking 
about, there is going to be an aggregate loss to the system 
every year, in every State in which insurance is written. All 
we are talking about is how we are going to fairly distribute 
what those rates are going to be for the people in this 
country.
    There are 30 million Americans who are currently driving 
without insurance because they can't afford it, and it is the 
obligation of this country to do something about it.
    Thank you very much.
    [The prepared statement of Mr. Poe can be found on page 77 
of the appendix.]
    Chairman Clay. Superintendent Dwyer, you are now recognized 
for 5 minutes.

   STATEMENT OF ELIZABETH KELLEHER DWYER, SUPERINTENDENT OF 
INSURANCE, THE STATE OF RHODE ISLAND, ON BEHALF OF THE NATIONAL 
         ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC)

    Ms. Dwyer. Thank you, Chairman Clay, Ranking Member 
Stivers, and members of the subcommittee. Thank you for the 
invitation to testify today.
    We appreciate the subcommittee's efforts to explore 
discrimination in automobile insurance. State insurance 
regulators are committed to ensuring that customers are treated 
fairly and have access to affordable auto insurance products. 
Protecting policyholders and addressing any unfair treatment of 
consumers is crucial to the work we do and the bedrock 
principles of State insurance regulation.
    Auto insurance underwriting and rate-setting are important 
for both insurer solvency and consumer protection, and 
insurance regulators have robust authorities to address 
discriminatory practices in these areas. Most States review 
rate filings to ensure that insurance companies are using rate 
factors that correlate with risk, a loss or expenses, and are 
based upon supportable actuarial evidence. The more 
underwriting factors that are used that correlate to risk of 
loss, the more accurate the risk assessment and the rate.
    This regulatory oversight helps to ensure policyholders are 
charged a reasonable rate, and an insurer is taking the 
appropriate amount of risk to maintain solvency, and therefore 
be able to pay policyholders.
    However, our regulatory framework recognizes that certain 
risk classifications, even when accurately correlated with 
risk, may be inconsistent with other public policies and also 
provide regulators with the authority to ensure that rates are 
not excessive, inadequate, or unfairly discriminatory. States 
have significant authority under their own fair trade practices 
statues, which prohibit insurers from refusing to insure or 
refusing to continue to insure or limiting the amount of 
coverage available to an individual because of race, sex, 
marital status, religion, or national origin.
    Through these authorities, insurance regulators strive to 
ensure that consumers are treated fairly and to maintain the 
critical balance between insurance solvency and product 
availability and affordability.
    To help us implement our statutory authorities, insurance 
regulators have tools designed to identify problematic 
activity, the rate approval processes, and market conduct 
regulation and examination. State regulators also recently 
enhanced their toolkit by collecting detailed auto insurance 
data. Regulators can select a region, city, or ZIP Code, and 
look at the coverage type, premium, and severity of losses in 
that area, and compare it to demographic data in their States. 
If States see anomalies or reasons for concern, they can follow 
up and look at the individual company. The NAIC is also 
completing a public report, which will show maps at ZIP Code-
level for every State under the same metrics.
    While insurance regulators have broad authorities to 
address unfair treatment of consumers, we acknowledge that 
insurance rating and underwriting have become increasingly 
sophisticated, with the advent of complex algorithms and the 
use of big data and artificial intelligence. Technological 
developments have the potential to improve how an insurer does 
business and can benefit policyholders. However, we recognize 
the complexity of these processes and the importance of 
ensuring that they comply with State insurance laws designed to 
protect consumers from illegal practices.
    To that end, insurance regulators, through the NAIC, are 
exploring insurers' use of big data for claims, marketing, 
underwriting, and pricing, and developing resources to help 
with evaluation of complex models, including developing best 
practices to serve as a guide for review of predictive models.
    In conclusion, we share your goal of preventing unfair 
treatment of insurance consumers and remain committed to 
addressing this important issue through our supervision of the 
insurance sector. States have the enforcement authority, data, 
expertise, and understanding of local market dynamics critical 
to auto insurance, and are in the best position to determine 
regulatory and legislative approaches to address discriminatory 
practices.
    For these reasons, the NAIC opposes Federal legislation 
that would preempt State insurance regulatory authority in 
these crucial areas and would limit a State's flexibility to 
regulate such practices in a manner it deems appropriate for 
the auto insurance market.
    Thank you for the opportunity to testify, and I would be 
pleased to answer any questions.
    [The prepared statement of Superintendent Dwyer can be 
found on page 46 of the appendix.]
    Chairman Clay. We will now go to Ms. Larkin-Thorne for 5 
minutes. You may proceed.

STATEMENT OF SONJA LARKIN-THORNE, CONSUMER ADVOCATE AND RETIRED 
                      INSURANCE EXECUTIVE

    Ms. Larkin-Thorne. Thank you, Chairman Clay, Ranking Member 
Stivers, and members of the subcommittee. Thank you for the 
opportunity to testify this afternoon on pending legislative 
proposals regarding the use of credit scoring in the 
underwriting of personal automobile insurance, and for allowing 
me to share my insights and actual experience.
    My name is Sonja Larkin-Thorne. I have over 40 years of 
experience in the insurance industry and I currently Chair the 
Consumer Data Subcommittee of the Connecticut Department of 
Insurance Advisory Council on Technology. My testimony will not 
attempt to repeat what you already know or have heard about the 
use of insurance credit scores in personal auto insurance 
underwriting or the many studies on this topic over the last 
20-plus years.
    My testimony focuses on the evolution of underwriting of 
personal automobile insurance from traditional underwriting to 
the use of credit scores, and now, to the use of big data. I 
hope my testimony will also highlight how the collection and 
analysis of these new data sources reaches every aspect of a 
policyholder's life, but does so with little or no regulatory 
oversight, and notably less oversight than is applied to credit 
scores.
    I am an insurance underwriter by training. I spent the 
first 10 years of my insurance career working in or managing 
underwriting departments. When I began my career, the manual 
process of collecting and analyzing underwriting data 
represented a significant expense that necessarily contributed 
to the cost of policyholder premiums.
    More than 40 years ago, insurers began to analyze and 
utilize data sources that could reduce underwriting costs while 
continuing to accurately reflect the likelihood and expense of 
a policyholder filing an auto insurance claim. I recall 
training my underwriting team on how to read a credit report, 
while they also reviewed traditional motor vehicle records and 
the policyholder's paper application for automobile insurance. 
We had no desktop computers or electronic submission of 
applications back then. Each piece of data was assigned a code 
for input into the company computers. Little did we know, that 
was the beginning of big data.
    There is no escaping that data is the foundation of the 
insurance industry and that the insurance industry has always 
collected data and made long-term predications regarding 
pricing, loss trends, and profitability. However, just like the 
days of traditional underwriting gave way to underwriting that 
included the use of insurance credit scores, the heydays of 
insurance credit scores are on their way out.
    The continued difficulty of explaining the correlations 
between how one pays their bills and the likelihood and expense 
of a policyholder filing an auto insurance claim has caused the 
largest insurers to move beyond insurance credit scores and to 
look at and use other data to enhance their underwriting and 
pricing.
    For example, California--and I grew up in California and 
lived in California for most of my life--one of the largest 
personal automobile insurance markets in the country, does not 
allow the use of insurance credit scores, yet the State remains 
one of the most competitive personal auto insurance markets in 
the country. This means insurance companies in California and 
elsewhere have figured out how to price personal auto insurance 
without using credit scores.
    The use of credit scores in personal automobile insurance 
underwriting increasingly is being enhanced or replaced with 
incredible amounts and new types of alternative, unregulated 
personal individual data. Commonly referred to as, ``big 
data,'' these extremely large datasets can be analyzed to 
reveal patterns, trends, and associations related to human 
behavior, interactions, shopping habits, driving patterns, and 
demographics like race, occupation, education, marital status, 
voting history, et cetera.
    It is this big data, often produced by unregulated 
algorithms that insurance companies use in insurance department 
rate filings, to which I wish to draw the subcommittee's 
attention. Any legislative or regulatory solution that seeks to 
achieve the goals behind the legislation before the 
subcommittee today needs to look further than the somewhat 
outdated and narrow issue of insurance credit scores.
    To this end, I would like to draw the subcommittee's 
attention to the current work of the National Association of 
Insurance Commissioners. The NAIC recognizes and has drawn 
appropriate attention to the use of credit scores and to the 
use of big data. Currently, there are 3 working groups looking 
at this issue, and each working group incorporates the nation's 
56 insurance regulators.
    My recommendations regarding the legislative proposals 
pending before the subcommittee are informed by my firm belief 
that insurance consumer protection is best served at the State 
level. Absolutely, there is a role for this subcommittee and 
for the Federal Insurance Office to work with our State 
insurance regulators to make sure that credit scores, big data, 
and any other datasets are used to fairly and responsibly set 
personal automobile insurance rates. I caution the subcommittee 
against imposing a Federal solution to address an issue for 
which the State insurance regulatory system is best designed.
    [The prepared statement of Ms. Larkin-Thorne can be found 
on page 71 of the appendix.]
    Chairman Clay. And Ms. Collins is now recognized for 5 
minutes.

   STATEMENT OF ERIN COLLINS, VICE PRESIDENT, STATE AFFAIRS, 
   NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES (NAMIC)

    Ms. Collins. Good afternoon, Chairman Clay, Ranking Member 
Stivers, and members of the subcommittee. Thank you for the 
opportunity to testify here today. My name is Erin Collins, and 
I am the Vice President of State Affairs for the National 
Association of Mutual Insurance Companies.
    NAMIC membership includes more than 1,400 regional and 
local mutual insurance companies on Main Streets across 
America, as well as many of the country's largest national 
insurers, who collectively write about half of the nation's 
auto insurance business.
    NAMIC is here today to speak in strong opposition to 
legislation designed to institute broad prohibitions on the use 
of legitimate and predictive underwriting tools in auto 
insurance. It is our view that Federal legislation in this area 
is unwarranted and unnecessary, and it has been demonstrated 
time and time again that such underwriting restrictions harm 
policyholders by driving up insurance costs across-the-board.
    I want to begin with an overview of insurance underwriting 
and risk-based pricing. The goal of insurance underwriting is 
to correlate the prices for insurance policies as closely as 
possible to the likely cost of claims generated by those 
policies. The more accurately a company targets the actual 
costs, they better they are able to serve their policyholders, 
which, in turn, enables them to offer more products to more 
individuals. Simply put, accurate underwriting enables more 
coverage for more consumers.
    Utilizing predictive information is unavoidably central to 
this process. Insurance differs from most other products 
because the actual cost of providing insurance is unknown at 
the time the product is offered, and the customary laws of 
supply and demand do not apply.
    Looking back at historic losses helps to forecast future 
losses, but prior claims alone do not provide enough 
information to serve as an adequate predictor of future risk. 
Therefore, to more accurately make these predictions, various 
factors are used to analyze the risk of future losses from any 
given policy.
    In today's auto insurance market, a multitude of risk-
predicting factors may be considered, including things like 
driving history, multi-policy discounts, vehicle information, 
vehicle safety equipment, age, credit history, miles driven, et 
cetera. How or even whether particular factors are used differs 
by insurer.
    However, today's actuarial science indicates that the most 
accurate risk assessment is achieved through a combination of 
risk factors. It is important to note that these factors are 
actuarially-based tools that are correlative and do not, and 
generally cannot demonstrate causational relationships. A 
causational relationship would indicate that a given factor 
results in a loss. Even a fact pattern of a dozen prior 
speeding tickets and prior accidents does not result in a 
future loss.
    Any assertion that factors should be held to a causational 
standard fundamentally misunderstands the methodology of 
actuarial science and would exclude practically every exercise 
to try to assess risk.
    The US auto insurance market is one of the most competitive 
of any industry in our economy, and competition ensures that 
insurers have every incentive to accurately and appropriately 
match the rate to the actual risk that is posed by a driver. 
Those companies that predict claim costs better than their 
competitors are typically more successful.
    Ultimately, we believe that competitive markets are the 
most effective way to ensure lower prices, widespread 
availability of insurance products, superior service, and 
product innovation. The State-based system of insurance 
regulation has allowed that competitive market in the U.S. to 
flourish. This robust regulatory system is designed with 
consumer protection foremost in mind, and regulates virtually 
every aspect of the insurance business. Under State law, 
insurers are prohibited from setting rates that are excessive, 
inadequate, or unfairly discriminatory against any individual. 
Stringent anti-discrimination prohibitions are also in place in 
the States, and rating factors must be actuarily sound in order 
to be used by law. There is no data to indicate that these 
provision or their enforcement have been inadequate or lacking.
    As I close, I would reiterate that banning the use of 
underwriting factors would simply disrupt and substantially 
weaken auto insurance markets across the country, undermine the 
State-based system of insurance regulation that serves the U.S. 
well, and ultimately harm the very consumers such action 
purports to help. Therefore, NAMIC respectfully encourages the 
subcommittee to reject the legislative proposals being 
discussed here today.
    Again, thank you for the opportunity to speak here today, 
and I look forward to answering any questions you may have.
    [The prepared statement of Ms. Collins can be found on page 
36 of the appendix.]
    Chairman Clay. I want to thank all of the witnesses for 
your testimony today, and now we will begin the 5-minute 
questioning period. I will start off by recognizing myself for 
5 minutes.
    Mr. Poe, you have testified previously that your company 
has chosen not to use certain non-driving-related factors such 
as credit history, despite the competitive advantage of doing 
so, because of concerns about the fairness of using such 
factors. Can you talk about which factors your company 
deliberately uses, chooses not to use, and how you believe that 
these company practices make auto insurance premiums more 
equitable and affordable for consumers?
    Mr. Poe. Yes. Thank you, Chairman. We don't use any non-
driving factors that are what we think are obvious corollaries 
to socioeconomic proxies. So we don't use--right now, we 
examine all filings by other carriers, and I can tell you, as a 
matter of fact, that my industry uses full-time employment as a 
decision of whether or not you are eligible for the preferred 
rates of a car insurer. So if you simply lose your job, your 
rates will be more, and you will not be eligible for a 
preferred company.
    What my industry does is they tend to actually file two 
separate companies with the same trademark name. For example, 
Geico has three trademark named companies in almost every State 
they do business: Geico; Geico Indemnity; and Geico Casualty. 
But you only get told to go to Geico.com and fill out a quote 
because you might save 15 percent.
    The reality is that most people who go to Geico and put in 
their information have no idea that on the basis of your 
educational attainment and your job, whether or you are in a 
high-paying job, you will be rejected from the preferred 
companies of Geico, and only be eligible for a higher rate for 
car insurance and not be notified, because there is no Federal 
requirement and there is no State requirement to say that you 
were rejected on the basis of your educational attainment and 
your occupation.
    There are other statuses like home ownership status. There 
is a reason why all these advertisements talk about bundle, 
bundle, bundle. Does a poor person have a house? A poor person 
barely has a window or a pot to pee in, to throw it out of.
    So, mandating insurance becomes a public policy 
requirement. In terms of this committee, there is a 
requirement, in our opinion, there is an obligation for 
legislators to make sure that if you are going to mandate car 
insurance, you can't just let poor people pay more than rich 
people. That is the bottom line.
    Chairman Clay. In other words, you are telling me that 
there is an extra tax for being poor.
    Mr. Poe. Exactly.
    Chairman Clay. It is imposed on these people by the 
industry.
    Mr. Poe. Yes. And unlike the traditional methods of 
predatory lending, where you can actually draw a conclusion of 
a credit risk because somebody doesn't earn as much money and 
they are more likely going to default on their loan because 
they don't have assets to collateralize, here we are talking 
about mandating car insurance, and I can be a safe driver my 
entire life. But simply because I am poor, I am going to pay 40 
percent more for car insurance, for no reason whatsoever except 
for that I drive less profits than the wealthier people in this 
country.
    Chairman Clay. Thank you for your response. This next 
question is for Mr. Heller and Ms. Larkin-Thorne. The insurance 
industry has stated that it is regulated at the State level, 
unlike most other large industries. Mr. Heller and Ms. Larkin-
Thorne, if the insurance companies don't change the way they 
treat certain discrete and insular minorities with regard to 
premium pricing, are the individual States capable of mandating 
change? We will start with you.
    Ms. Larkin-Thorne. Thank you, Mr. Chairman. Yes, they are. 
California is a prime example of a State that took control of 
insurance rating factors. The people, the voters of California 
changed that law. And I say that any State voters who want to 
build the type of coalition that was built in California, that 
took on insurance companies spending millions of dollars 
against their initiative, they can win.
    I believe in the power of the vote, I believe in the power 
of the people, and I think if they want to change, they can. 
And every Member who thinks that there is a problem in their 
State should be talking to their insurance commissioners. They 
should be talking to their legislatures. And I think that they 
can facilitate the type of change they want. You look at 
California. You look at Hawaii. They did it.
    Chairman Clay. Mr. Heller, are the States capable of 
mandating change?
    Mr. Heller. Mr. Chairman, unfortunately, I think many 
States have fallen down and failed on this issue. I agree with 
Ms. Larkin-Thorne. I am a Californian and I work very closely 
with the California regulators. The people of California did 
speak. Unfortunately, most States don't have a ballot 
initiative the way California did to enact that law and 
overcome the resistance.
    Unfortunately, regulators around the country have fallen 
flat on this issue, and we need the support from the Federal 
Government to say you need to at least have a bare minimum, 
because if you are going to make people buy insurance, we are 
going to make sure that you have a floor of protections for 
consumers, so low-income consumers and communities of color 
have access to products in their State.
    Chairman Clay. Thank you for your response. My time has 
expired. The gentleman from Ohio, Mr. Stivers, the ranking 
member of the subcommittee, is now recognized for 5 minutes.
    Mr. Stivers. Thank you. Thanks, Mr. Chairman, for holding 
this hearing. And I thank all of you for your testimony, and I 
would like to start with Ms. Dwyer.
    Can State insurance regulators be trusted to prevent 
discrimination in the auto insurance markets?
    Ms. Dwyer. Yes, we can.
    Mr. Stivers. What mechanisms do they currently employ to 
prevent this?
    Ms. Dwyer. We currently, in every State except Illinois, 
review all rate filings from all auto insurance companies. We 
look at both the form and the rates being charged. We look at 
their algorithms, and we test for factors such as suspect 
classifications. We would never allow anyone to rate on race, 
national origin, or religion, and that is pretty much standard 
in all 50 States.
    Mr. Stivers. Great. A question for Mr. Heller, given that 
you said that our State insurance regulators have fallen down 
on the job. They have been on that job for 75 years, since D-
Day. Would you prefer, then, a Federal regulator, for instance?
    Mr. Heller. No.
    Mr. Stivers. So, you would prefer--
    Mr. Heller. Thank you, Mr. Stivers. I actually--
    Mr. Stivers. --Federal laws to override McCarran-Ferguson?
    Mr. Heller. I think that it might be good to get rid of the 
antitrust exemption that the insurance industry is given 
through McCarran-Ferguson. That is true.
    But Ranking Member Stivers, I actually believe in State 
regulation. I think it is the way to go, because I do think 
that at the local level, we can do a better job. But what I 
have seen in too many States, is--
    Mr. Stivers. I only have 5 minutes, so be quick.
    Mr. Heller. --a failure to protect the most vulnerable 
consumers, and I think efforts here in Congress to support a 
basic floor of rules and protections would be valuable.
    Mr. Stivers. Okay. For Ms. Dwyer and Ms. Collins, does 
anything in this bill by the Congresswoman from Michigan, Ms. 
Tlaib, change the insurance rates in Michigan suddenly, if this 
bill were to pass? Would it change insurance rates in Michigan 
for automobile drivers, any of them?
    Ms. Collins. Thank you. I don't think it would 
demonstrably--
    Mr. Stivers. The studies--would that change insurance rates 
for anybody?
    Ms. Collins. It would not demonstrably improve insurance 
rates, no. I am sensitive to the concerns of the Michigan 
insurance market. I have spent a large part of my career 
working on those issues, and they are not problematic because 
of underwriting factors. They are built upon the problems of 
the no-fault system with unlimited lifetime medical benefits.
    Mr. Stivers. Ms. Dwyer, are you familiar with what is going 
on in Michigan with regard to personal injury protection and 
what the Michigan legislature and the governor are doing to 
actually try to fix that, to make insurance more affordable in 
Michigan?
    Ms. Dwyer. Yes, and I am absolutely not an expert, but it 
is my understanding that there have been changes that will go 
into effect in July that should be beneficial.
    As far as your original question, what it would do, 
removing one factor would reallocate, so some people would get 
increases, and some people would get decreases. It would be 
disruptive to the market, but it wouldn't appreciably lower 
what everyone is paying.
    Mr. Stivers. And Ms. Collins, let's say for a second we 
were to only go to driving factors. Are you familiar with the 
study from Stanford University that indicates that minorities 
are much more likely to be pulled over and ticketed than white 
drivers? And if Congress would decide to preempt State laws and 
only move to driving factors, excluding all non-driving 
factors, what would that do to minority policyholders?
    Ms. Collins. I am not specifically familiar with that 
study. Generally speaking, in terms of driving records, I do 
know that they are notoriously inaccurate, and I think that we 
have shown that the majority of drivers in America are 
benefitted from a full picture of risk, by as many factors as 
can be contemplated.
    Mr. Stivers. Is it possible that if we move to only driving 
factors, potential institutional racism that happens in some 
places where minority drivers are more likely to be pulled over 
and ticketed would actually result in higher insurance rates 
for minority drivers?
    Ms. Collins. Based on your description of that study, yes, 
that does seem logical.
    Mr. Stivers. That is a study from Stanford University, so I 
will summarize it for you.
    And this question is for Superintendent Dwyer. Do you think 
the bills attached to this hearing raise any concerns about 
broad Federal overreach into our State-based system?
    Ms. Dwyer. Yes, I do. The other factor that has to be taken 
into account is financial solvency. So the more rating factors 
that are used, the better predictor of risk, the more solvent 
the company is. And why is that important? Because they pay 
consumers. The worst thing out there would be paying premiums 
and not having your claim paid.
    Mr. Stivers. Great. Quickly, just by a show of hands, is 
there anyone on the panel who does not support the State-based 
regulation for insurance under McCarran-Ferguson?
    I will note the absence of a raised hand, which means 
everyone on the panel does support McCarran-Ferguson and the 
State-based policy. Is that correct? Can you show me by a nod 
of the heads or something? Great.
    Mr. Chairman, my time has almost expired. I would like to 
submit for the record letters from the Insurance Information 
Institute, the American Property Casualty Insurance 
Association, and the U.S. Chamber of Commerce, that all have 
some concerns about the draft legislation we are talking about 
today, and I would appreciate them being entered into the 
record.
    I yield back the balance of my time. Thank you.
    Chairman Clay. The gentleman yields back, and without 
objection, the documents are submitted for the record.
    And I have to note that my friend from Ohio has adopted Mr. 
Green of Texas's tactic as far as a show of hands.
    Mr. Stivers. It is a good tactic.
    Chairman Clay. I now recognize the gentlewoman from 
Michigan, Ms. Tlaib, for 5 minutes.
    Ms. Tlaib. Hello, everyone. Thank you so much for being 
here. This is one of the most critical issues right now in the 
State of Michigan that is keeping people in poverty, because of 
these high rates.
    We can talk a lot about some of the other broken system, 
but one question I have, to follow up on my colleague's 
question, is how many of you on the panel support proxies that 
discriminate?
    Okay. Ms. Collins, I have some questions for you. What is 
your marital status?
    Ms. Collins. Thank you, Congresswoman. I am married.
    Ms. Tlaib. Yes. Credit score?
    Ms. Collins. I do have a credit score.
    Ms. Tlaib. Do you know what it is?
    Ms. Collins. Not offhand, no, I don't.
    Ms. Tlaib. How about your education level?
    Ms. Collins. I have a master's degree.
    Ms. Tlaib. How about your ZIP Code, if you would like to 
provide that.
    Ms. Collins. I have a ZIP Code. I prefer not to share it.
    Ms. Tlaib. Sure. These are the questions that are asked of 
my residents, which have nothing to do with whether or not they 
are a good driver. It has nothing to do with whether or not 
they are susceptible to accidents. These are proxies to 
discriminate, and it is very frustrating for my residents, from 
their credit score, to their education level, to even be asked 
that, or them turning from married to widow, that they see a 
300 percent hike in their auto insurance rates.
    And so one question to Mr. Heller, one of the studies that 
Poverty Solutions at the University of Michigan did was they 
looked at someone with a decent credit score, and someone with 
a better credit score, and the person who had a lower credit 
score was paying 300 percent more than the other person, but 
the other person, the one with the better credit score, had a 
DUI, driving under the influence, violation.
    What would justify--and again, this is a study by the 
University of Michigan showing a 300 percent hike, again, of 
the person who is the safer driver versus the one who would 
drink and drive?
    Mr. Heller. Thank you, Representative Tlaib. Unfortunately, 
that is not just a problem in Michigan. That is what we see in 
most States. Consumer Reports, a couple of years ago, reported 
that in most States the drunk driver with excellent credit pays 
less for insurance, on average, for the same product than the 
poor credit, excellent driver. And what the insurance industry 
sees in the poor credit, excellent driver, is somebody who, 
with other factors like their job title or their education, is 
likely to buy a basic limits auto insurance policy, and that is 
just not that attractive. There is not a big lifetime value to 
selling sur to somebody who is only buying the minimum limits.
    But that person with the drunk driving violation and the 
excellent credit score, and perhaps also the investment banker 
with a college degree, might buy home insurance as well, and 
maybe life insurance, an umbrella policy. Maybe they will 
insure their boat. The lifetime value is what the insurance 
companies are looking for. And that may be fine for other 
products, but in virtually every State in the country, auto 
insurance is required by law, and that is why we believe we 
have to have some public policy standards that say some factors 
are not acceptable because they are keeping people from getting 
into the market and leaving them uninsured.
    Ms. Tlaib. And one of the things I want to refer to you, 
Ms. Collins, and I would like the chairman to submit for the 
record, are ProPublica and Consumer Reports reports which found 
that members of the National Association of Mutual Insurance 
Companies were charging higher rates in ZIP Codes where most 
residents are minorities than ZIP Codes that were predominantly 
white neighborhoods with similar accident calls.
    Chairman Clay. Without objection, it is so ordered.
    Ms. Tlaib. Thank you. Ms. Collins, justifying racial 
disparities by pointing to differences in risk is an argument 
that falls apart when we really investigate the data. Why would 
the association be against a study, just to investigate the 
data regarding disparate impact of auto insurance rates? Why 
don't you want to know if it impacts your consumers, the ones 
who are paying into the system, to make sure they are not being 
discriminated against?
    Ms. Collins. NAMIC is supportive of objective studies that 
look at all underwriting and rate impactors--
    Ms. Tlaib. So you are okay with the Federal Government--
    Ms. Collins. We are okay with the FTC study. There are 
numerous studies that look at these factors, in Arkansas, for 
example.
    Ms. Tlaib. Are you okay with the Federal Insurance Office 
investigating? Why wouldn't they be objective?
    Ms. Collins. If you're speaking to the measure in this 
committee, please note that I said, ``objective study.'' I 
believe that studies should not be built with conclusions in 
mind, and the language of that particular bill seems not to 
meet that test. So, we would oppose that measure.
    Ms. Tlaib. One of the things in some of the comments by 
some of your members has been that low-income Americans spend 
more money on cigarettes and alcoholic beverages. Do you 
remember that study and those comments coming from your 
association?
    Ms. Collins. I am assuming you are referring to the letter 
you referenced in the last hearing.
    Ms. Tlaib. That's right.
    Ms. Collins. I am glad you brought that up, because there 
was an article that grossly mischaracterized a letter that we 
wrote directly in response to the--
    Ms. Tlaib. Well, then why not support--
    Ms. Collins. --FIO study's specific questions.
    Ms. Tlaib. But why not, Ms. Collins, support actually 
investigating whether or not there is disparate impact in your 
industry?
    Ms. Collins. We were responsive to the FIO's specific 
questions.
    Ms. Tlaib. Why not support the Federal Insurance Office to 
provide this data and information, so we make sure that our 
folks are not being discriminated against.
    Chairman Clay. The gentlewoman from Michigan's time has 
expired.
    Ms. Collins. Thank you, Mr. Chairman. I would be happy to 
schedule some time to sit down with the Congresswoman and go 
through those issues at her leisure.
    Chairman Clay. Okay. I now recognize the gentleman from 
Florida, Mr. Posey, for 5 minutes.
    Mr. Posey. Thank you, Mr. Chairman. It has been my 
observation over the years that the government closest to the 
people works best. One of the biggest problems I observed in 
the Florida legislature was that members of the legislature who 
had not served in local government thought that when they got 
elected to the legislature, that meant they were the boss of 
local government. And, at the same time, they hated the Federal 
mandates that would get passed down from time to time.
    Hypocritically, I might add, one day, actually at 10:00 in 
the morning, they passed a joint resolution to Congress and 
said, ``Do not send us one more of your unfunded mandates,'' 
period, end of subject, exclamation point. At 2:00, 4 hours 
later, they passed an unfunded mandate on local governments.
    And then, one of the problems I see here in Washington is 
that Members who haven't served in local governments or State 
governments seem to think that suddenly they are the boss of 
the State governments and the local governments, which makes it 
even worse.
    And on the regulatory side, we have talented leadership in 
our States and their insurance commissioners, and historically, 
States regulated insurance and helped tailor insurance products 
to the needs of the people in their States. Today, we have 
legislation before us that would intervene or interfere in the 
State-led insurance sector by dictating coverage and premium-
making practices. This would prohibit the use of credit scores, 
credit reports, or ZIP Codes, as mentioned earlier, as if 
somebody in Manhattan should pay the same price for liability 
insurance as somebody in rural Wyoming. I don't know how you 
can think that, but obviously, there shouldn't be any 
discrimination whatsoever in the insurance industry or any 
other industries.
    And to follow up with Ms. Collins, what is the evidence 
regarding discrimination in coverage decisions in pricing of 
auto insurance?
    Ms. Collins. Thank you, Congressman. There is no evidence 
that I am aware of that there is any unfair discrimination in 
underwriting or rating in auto insurance. In fact, the State-
based system is quite adept at regulating the market. 
Superintendent Dwyer and her colleagues are robust regulators 
who ensure that there are no unfair discriminatory practices in 
the auto insurance market, or any insurance market, for that 
matter, and you will find no greater advocate of the State-
based system than NAMIC.
    Mr. Posey. Is there a case you are aware of where auto 
insurers discriminated based on race or gender?
    Ms. Collins. No. I am not aware of, again, any unfair 
discrimination in auto insurance.
    Mr. Posey. How would the industry assess this bill to 
prohibit the use of a credit report, ZIP Code, credit score, 
other consumer data or information?
    Ms. Collins. I think credit-based insurance scores have 
been the subject of quite a lot of study over the years, and 
they have a variety of authors--States, localities, departments 
of insurance--and they all reached the same conclusion, which 
is that credit-based insurance scores are highly predictive of 
risk.
    And I should note that credit-based insurance scores are 
not the same thing as a credit report. Where a credit report 
refers to delinquency, a credit-based insurance score aims to 
predict an insurance loss. And what the studies have shown is 
that it is incredibly predictive in doing that. So, to remove 
that asset and tool in matching rate to risk would demonstrably 
harm the insurance market, and ultimately, harm consumers.
    Mr. Posey. Many comments have been written on the power of 
market competition to drive out discrimination. It makes sense 
that an auto insurance company would find little profit in 
deciding to charge a higher price to persons of color or women, 
or not to sell them insurance if a competitor would provide the 
coverage or could bid the business in a way with a lower rate.
    Can you please share with me what we know about the power 
of competition in discouraging discrimination, let's just say 
in auto insurance, for example?
    Ms. Collins. Sure. The State-based system in the United 
States has fostered the most competitive and powerful insurance 
market in the world, and that only helps consumers. It provides 
more coverage opportunities, more products, more innovation, 
and that only creates more space and more entities to compete 
for those policyholders' business. And to that end, it would 
ultimately be a factor that would eliminate that kind of bias 
rather than increase it.
    Mr. Posey. Thank you. I have read that regulators in 
California are thinking of prohibiting discounts to certain 
classes of drivers because they believe such discounts are not 
based on the likelihood of lower claims, and that such 
discounts result in discrimination. While this does not sound 
like a good policy, it is also a powerful example that States 
already have the responsibility to regulate their own insurance 
markets, making the kind of Federal legislation we are 
examining here inappropriate in preempting the strong State-
based system of insurance regulation.
    Can you please comment on this, and whether California's 
plan to prohibit certain discounts is a good way to fight 
discrimination?
    Ms. Collins. I don't believe that an initiative like that 
would at all address the concerns that it purports to protect. 
In fact, I think it would hurt the consumers ultimately, 
because it would restrict further the ability of insurance 
companies to accurately rate risk and offer their customers 
discounts that they find valuable.
    Chairman Clay. The gentleman's time--
    Mr. Posey. Thank you, Mr. Chairman, for the time.
    Chairman Clay. --has expired. The gentleman from Florida, 
Mr. Lawson, is recognized for 5 minutes.
    Mr. Lawson. Thank you, Mr. Chairman, and witnesses, welcome 
to the committee. This question is more of an observation, and 
I think anyone can answer it. The National Highway Traffic 
Safety Administration (NHTSA) confirmed that male drivers cause 
6.1 million accidents annually, while there are only 4.4 
million crashes per year with women at fault. Yet, women are 
more likely to pay higher rates than their male counterparts, 
according to the research just completed by the CFA.
    The CFA found that Progressive charged 40-year-old female 
drivers living in Tampa 32 percent more for the same coverage 
than males. The insurance company's use of gender as a rating 
factor does not seem to reveal much in the way of a consistent 
risk assessment.
    Do you think regulators should reconsider allowing 
companies to continue using it at all? I will start with you, 
Mr. Heller.
    Mr. Heller. Thank you, sir. The use of gender in auto 
insurance is something that surprises people, particularly 
women who think that they are going to get a better deal. You 
cited some statistics. And while it is true that in some 
companies, young men still pay more than young women, not only 
has the Consumer Federation of America found, but also several 
insurance industry research studies and the California 
Department of Insurance have found that women pay more for auto 
insurance now, and it is just striking to people. It is also 
unfair. That is why about seven States have prohibited the use 
of gender, California most recently.
    And I think that the point perhaps is that we need to 
protect people who have to buy this product, and if the States 
aren't taking on that role, then it is important for the 
Federal Government to push them in that direction. That is why 
this hearing is so important, if only to raise the attention 
and make the State regulators pay attention. We appreciate it, 
as we are working in the States for this protection, because 
women should not pay more for auto insurance, and it is 
happening across the country.
    Mr. Lawson. Mr. Poe, do you want to comment on that?
    Mr. Poe. Yes, just that we don't use--
    Mr. Lawson. I can hardly hear you.
    Mr. Poe. Sorry. Just that we have never actually charged 
females more than males, so that data only suggests that once 
again, males probably make a higher income. Higher incomes 
generate better profitability, and that is probably what 
justifies their algorithms, not based on our non-driving 
factors, traditionally. So there is never a female who actually 
pays a higher rate with our carrier.
    Mr. Lawson. Does anyone else want to comment on that?
    Ms. Dwyer. Thank you. When we look at an algorithm, when we 
look at a rate filing, we make sure that every factor being 
used is supported actuarily. So some of the information that 
you are producing should be taken into account by the actuary, 
but we do not allow them to simply use a factor that has no 
actuarial basis.
    Different companies are also going to use different 
factors. So as an individual, if you receive a poor rate from 
one company, you can shop that rate and get different amounts, 
because they are looking at their overall risk. That 
competition benefits the individual customer.
    Mr. Lawson. Ms. Larkin-Thorne?
    Ms. Larkin-Thorne. As a divorced mom who raised a child, 
when I went from married to single or divorced, my insurance 
rate did not change. It was the same. And so I look at it, and 
I have friends who have had the same circumstances, and I have 
not heard that complaint. And I talk to a lot of people about 
their insurance.
    Now I live in Connecticut and it may be the rates in our 
State. But I was in California at the time I was divorced and 
my rate absolutely did not change at all.
    Mr. Lawson. Ms. Collins?
    Ms. Collins. Thank you, Congressman. I would echo the 
comments from Superintendent Dwyer that it is important to 
recognize that each factor must be actuarily sound in order to 
be utilized. I would also note that as I stated in the 
beginning, we find that actuarial science most often dictates, 
and the companies now employ, that it is a combination of all 
factors. So there is not an instance where there is an 
individual factor that dictates the rate or underwriting of an 
individual.
    Mr. Lawson. So basically what you are saying is--I know my 
time is running out--in Florida, for example, in an area like 
Tampa, females 40 years of age are paying a 30 percent higher 
rate than the males in Florida. Mr. Heller, I don't understand 
how that happens.
    Mr. Heller. It does happen, and it happens because the 
insurance companies are pricing the way they want for their 
profitability. And unfortunately, regulators are not diving in 
as deep as they can. With respect to Superintendent Dwyer, I 
see this around the country, and I will note that the big irony 
here is that some companies do charge women less than men. And 
if the actuarial science was accurate, there is no reason that 
one company would see women as more risky and another company 
would see men as more risky. They are doing this for their own 
marketing purposes, but consumers have to buy the product, 
irrespective of their gender.
    Mr. Lawson. Thank you. My time has expired, and I yield 
back, Mr. Chairman.
    Chairman Clay. The gentleman's time has expired. The 
gentleman from Colorado, Mr. Tipton, is recognized for 5 
minutes.
    Mr. Tipton. Thank you, Mr. Chairman, and I thank the panel 
for taking the time to be here.
    I wanted to be able to get a little bit of clarity on some 
of the comments that I have heard in regards to a ZIP Code 
having an impact on assessing driving risk. Ms. Collins, does 
the ZIP Code impact what kind of rate you are going to be 
paying?
    Ms. Collins. Thank you, Congressman. Territorial rating, 
especially in dealing with auto insurance and other areas of 
insurance, is important in that it helps to identify areas of 
risk. For example, a risk associated with auto insurance is 
density. The number of drivers on the road, the population on 
the road, all factor into the risk of severity of accidents and 
frequency of accidents. So, a car located in a rural plains 
State is not going to have the same risk profile as a vehicle 
in a downtown metropolitan area. So yes, to answer your 
question, it is an important factor.
    Mr. Tipton. I live in a rural area of Colorado, so I am 
probably going to have a lower rate than somebody driving in 
Washington, D.C.?
    Ms. Collins. Yes. I think to the extent that the factor is 
utilized on territory, yes, that situation, that factor would 
show a lower risk.
    Mr. Tipton. I did want to follow up with you a little bit 
as well in regards to the credit scoring. You noted it is not 
the credit score but being able to use it as a predictive 
model. Can you expand on that a little bit?
    Ms. Collins. Sure. A credit-based insurance score is a 
score that uses pieces of a credit report to develop an overall 
insurance score that relates, and directly relates to the risk 
of insurance loss. And the studies that have been done on 
credit-based insurance scores overwhelmingly show that it is 
not just predictive, it is overwhelmingly predictive, and is 
one of the most predictive factors of insurance loss that 
exists.
    Mr. Tipton. So the credit information, as you describe it, 
applied correctly, can actually benefit the consumers by 
lowering some rates?
    Ms. Collins. Yes. Actually, the Arkansas study on credit-
based insurance scores showed that the vast majority of drivers 
benefitted from the use of credit-based insurance scores.
    Mr. Tipton. Thank you. And you also spoke to the study bill 
that is being discussed here to a degree today. But studying 
some of the underwriting factors nationally, this would make it 
public information, is that accurate?
    Ms. Collins. That is my understanding, yes.
    Mr. Tipton. Okay. That would be an unprecedented step for 
the Federal Government, wouldn't it?
    Ms. Collins. To my knowledge, yes.
    Mr. Tipton. So following that line of thought, what would 
be the impact of disclosing this proprietary underwriting 
information beyond the insurance market as a whole?
    Ms. Collins. In my opinion, it would create, at minimum, a 
dampening effect, but realistically, potentially the end of 
innovation in auto insurance. It would create a situation in 
which insurers are not able to develop new ways of assessing 
risk or ways to develop value propositions to their customers 
or to their potential customers. So, I think it would 
demonstrably harm the market.
    Mr. Tipton. So just saying, why have a problem with a study 
bill, effectively, this study bill would have a dampening 
effect and would probably impact nationwide some of the 
innovation that is needed in the insurance market?
    Ms. Collins. I think it would be wildly detrimental to 
innovation, yes.
    Mr. Tipton. Okay. We do have a well-established Federal 
statutory precedent in this country in regards to regulation 
matters relating to insurance belonging to the individual 
States. Our States have had the authority, as the 
superintendent had noted, to be able to develop the insurance 
market within their borders. We just passed, in the Views and 
Estimates, out of the hearing this last week, a proposal 
regarding some of the State impacts that we are going to be 
seeing, at least on the Republican side, to be able to have it 
at the State level.
    So, Ms. Collins, would the study bill before the committee 
today jeopardize the State-based approach to regulation?
    Ms. Collins. Yes, I do believe it would. It certainly does 
not take into account the 10,000 regulators across the United 
States that have created and maintained such a powerful 
insurance market in the States, and I think it would 
demonstrably undermine the State-based system and how well they 
regulate the market now.
    Mr. Tipton. Thanks. And finally, Superintendent Dwyer, 
almost every State in the country has adopted a law requiring 
insurance premiums not to be excessive, inadequate, or unfairly 
discriminatory. Could the public disclosure of proprietary 
underwriting standards undermine the foundation of fairness 
that individual States have implemented?
    Ms. Dwyer. Yes, it could. Normally, those types of factors 
are not public.
    Mr. Tipton. Great. Thank you. My time has expired, Mr. 
Chairman.
    Chairman Clay. The gentleman's time has expired. I now 
recognize the gentleman from Missouri, Mr. Luetkemeyer, for 5 
minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. And I welcome the 
witnesses. I guess I want to start with, what is the definition 
of insurance? I think it is the company accepting the risk to 
pay the losses that are incurred as a result of an automobile 
accident. Is that a fair explanation of what insurance is, and 
the risk that you are taking?
    Ms. Collins, you made the comment that the companies' rate 
for risk, and I think two or three of you already said that the 
rate factors are actuarily sound, so they can't go out, and 
there are laws in place that prohibit discrimination for 
certain things. So after that, we get to the point where, okay, 
how do we charge for the risk?
    In flood insurance, we have one rate. If you have a $50,000 
house, you pay $750. If you have a $250,000 house, you pay 
$750. Mr. Heller, do you think that is fair?
    Mr. Heller. The one rate for flood insurance, I don't think 
that is exactly how it works, because it is relative to where 
you are vis-a-vis the flood map.
    Mr. Luetkemeyer. It is pretty well one rate. We do not 
discriminate between the size of the risk. Do you think having 
one rate across-the-board is fair? That is my question.
    Mr. Heller. I think that one rate would be an acceptable 
way to go if we are trying to create the biggest pool to bring 
people in. I think it is better to--
    Mr. Luetkemeyer. If you have a $250,000 house, you would 
rather pay less for your insurance than me, who would have to 
subsidize your rate. Is that what you are saying?
    Mr. Heller. No. I guess I am not following your question, 
because there are different rates depending on what--
    Mr. Luetkemeyer. Okay. Let's throw this out, since you are 
not getting it right. Okay. If you want to have one rate for 
everything--
    Mr. Heller. Oh, I see.
    Mr. Luetkemeyer. Okay. So, we are taking car insurance and 
everybody pays the same rate, period, across-the-board. Is that 
fair?
    Mr. Heller. If that would be the case, no. It would not be 
fair--
    Mr. Luetkemeyer. In other words, if my son--he is a lot 
older than 19, but let's say he is 19 and he has two DWIs and 
two wrecks on his record, and he buys a new Corvette. Do you 
want to pay the same rate as he does?
    Mr. Heller. No. I believe that his risk would be higher--
    Mr. Luetkemeyer. Okay. So we agree that there are rating 
factors that should be an important part of this discussion.
    Mr. Heller. That is absolutely right.
    Mr. Luetkemeyer. Okay. So where do we go with the rating 
factors? We have laws that say certain ones are legal and 
certain ones are not.
    Mr. Poe is concerned about some of the rating factors 
because his company is getting beat by Geico and Progressive 
because they decided to find different rating factors that they 
could use to be able to frame their rates differently.
    So, in a free market society, if I like Snickers more than 
anybody else, and insurance companies decide they want to go 
out here and figure out if people who eat Snickers candy bars 
are more or less likely to have a wreck, do you think that is a 
good rating factor, if they want to take the risk on whether 
that is right or not?
    Mr. Heller. Sir, the government--
    Mr. Luetkemeyer. Answer the question. Yes or no?
    Mr. Heller. They don't require people to buy Snickers. They 
do require people to buy auto insurance. It is a different 
market.
    Mr. Luetkemeyer. Mr. Heller, they require them only to buy 
liability and uninsured motorist, which is for somebody else, 
not for you, okay.
    Mr. Heller. And yet they discriminate based on their--
    Mr. Luetkemeyer. Do you want to be hit by an uninsured 
motorist and suffer the loss for lots and lots of health 
issues, and not have insurance to pay for that, not have 
somebody reimburse you for your car that has been damaged, if 
you have a brand-new Cadillac? Is that fair? Yes or no?
    Mr. Heller. That is not fair, and that is why we want to 
get more people--
    Mr. Luetkemeyer. Okay. This is why--
    Mr. Heller. --into the market so they are not uninsured.
    Mr. Luetkemeyer. --the States have mandated that you have 
at least liability insurance. Now, if you have full coverage, 
that is required by your lienholder, who, guess what, they want 
to be able to pay for that car if it has a wreck, right? So, 
let's don't go there now and say you are required to do this. 
You are not required to have full coverage unless you want it, 
on your own car, unless a lienholder is there.
    Mr. Heller. And, sir, all of the rate--
    Mr. Luetkemeyer. Is that right? Am I correct?
    Mr. Heller. --quotes that I gave are for liability-only 
coverage. We discriminate on liability for credit. You use your 
credit score just for the liability policy.
    Mr. Luetkemeyer. I am not there yet. I am talking about 
different criteria, and we are going to get there. Just a 
second.
    Mr. Heller. Let's only talk about liability-only, the one 
that you are required to buy. I think that is fair.
    Mr. Luetkemeyer. We are talking about different rating 
factors here. My comment and question to you is, if I, as a 
business in the free market, want to decide if anybody who eats 
Snickers bars gets a discount because I think they are going to 
be more--because of the sugar high they are on, they will be 
able to react more quickly. Therefore, I think they are going 
to be a better risk. Is that okay for me to do that?
    Mr. Heller. Not in the auto insurance market, because there 
is no justification for that.
    Mr. Luetkemeyer. If I can actuarily show that, if these 
ladies over here said I could actuarily show that, is that 
fair?
    Mr. Heller. No, I don't think that would be fair.
    Mr. Luetkemeyer. You don't believe in actuarily having 
sound rates?
    Mr. Heller. I think that what we need to do is we need to 
focus our rates on a product that we require people to buy, 
based on driving rate.
    Mr. Luetkemeyer. No, you are missing the whole point. You 
are going off on another tangent, sir.
    Mr. Heller. Forgive me.
    Mr. Luetkemeyer. Sir, I have the microphone. I'm sorry. It 
is my question.
    Ms. Collins, do you think I am going down the right road 
here?
    Ms. Collins. Yes, Congressman. I think it makes perfect 
sense. If you believe that rates should match risk then it 
makes no sense to--
    Mr. Luetkemeyer. In a free-market society, is it okay for 
the company who decides they want to slice the bread thinner, 
if they come out with a different way to look at this that is 
within the law, and they want to decide if I can eat a Snickers 
bar and I am more astute behind the wheel, I can be a better 
driver, is it okay for them to give me a discount, and let 
somebody else have to pay more? Is that fair?
    Ms. Collins. So long as the factors are actuarily sound 
and--
    Mr. Luetkemeyer. And you approve, and they can actually 
show that I am a better driver because of that?
    Ms. Collins. We would support that, yes.
    Mr. Luetkemeyer. Thank you very much. I yield back.
    Chairman Clay. The gentleman's time has expired. I now 
recognize the gentleman from Ohio, Mr. Davidson, for 5 minutes.
    Mr. Davidson. I thank the chairman. And I thank the 
witnesses for coming, and I'm hoping to learn more for the good 
of the American people and the preservation of a very sound 
State-based automobile insurance market.
    Here we are yet again, visiting an issue that this 
committee held a hearing on last year, and multiple bills and 
amendments have failed since then. When we discussed this topic 
last year, Congresswoman Beatty from Ohio put it well. She 
said, ``This seems like a Michigan problem to me. Why should we 
use Michigan, with a deeply flawed system, as evidence that the 
Federal Government needs to usurp State laws and change how 
insurance rates are calculated?''
    I agree with her. Auto insurance costs an Ohio driver, on 
average, just $952 a year, compared to $2,484 a year in 
Michigan. Better yet, auto insurance costs $1,277 a year, on 
average, in Cleveland, whereas it is $5,414 a year in Detroit. 
Now, these two cities have similar demographics, and these 
figures aren't mined. They are figures that Josh Rivera, from 
the University of Michigan, gathered and wrote about. I would 
like to enter his report into the record.
    Chairman Clay. Without objection, it is so ordered.
    Mr. Davidson. I thank the chairman.
    So the conclusion I am supposed to draw from the dialogue 
here, or from some of my colleagues, is that to use credit 
scoring data by auto insurers amounts to some sort of racist or 
misogynistic conspiracy by the auto industry, in response to 
higher auto insurance rates in Michigan. Why not Cleveland? Is 
there no one with a low credit score in Cleveland? Just 
Detroit? They have low credit scores in Detroit and nobody in 
Cleveland has low credit scores? There are no racial minorities 
in Cleveland? There are no men and women differences in 
Cleveland versus Detroit? It makes no sense to disrupt the 
system based off of these arguments.
    I would like to flesh out Congresswoman Tlaib's argument. 
We keep on discussing driving history only for pricing. There 
are a lot of folks who believe that minorities are more likely 
to be pulled over, ticketed, or arrested. Does that factor in? 
There are a host of factors that could explain some of these 
differences, and the question is, can insurance companies take 
into account actuarily sound data in their pricing models?
    So Ms. Collins, what is the right way to factor these 
considerations in under actuarial standards and the bounds of 
the law?
    Ms. Collins. Thank you, Congressman. Insurance companies 
look at a variety of factors to try to identify risk as closely 
as they can with the cost that would be incurred, and the 
ability for them to be able to do that is what keeps the market 
functioning. And the issues associated in Michigan have really 
very little to do with that process, as we noted earlier, and 
the medical costs associated in that system.
    So to directly answer your question, the impact of not 
being able to match that rate to that risk would cause 
uncertainty for insurance companies, and that would lead to a 
direct rise in costs.
    Mr. Davidson. Thank you for the explanation and further 
clarification that, frankly, my colleague from Michigan is 
trying to deal with State law by imposing a Federal standard 
that could make Ohio as bad as Michigan, frankly. Instead, 
perhaps we could consider how the State legislature of Michigan 
could change the liabilities that insurers could price, that 
individuals could have in the market in Michigan. So that would 
be in the statehouse in Michigan, not here in Congress, in 
Washington, D.C.
    My colleague would argue that we should do away with other 
factors and just use driving history, but if it is true, then 
how do we price in factors like liability in States like State 
law? We should be able to use sound practices and we should be 
able to do it based on the law of the jurisdiction where the 
insurance coverage is being priced.
    It seems to me that what my colleagues are actually wanting 
is a sane price regardless of risk. They want to socialize the 
entire risk pool so that everyone is treated the same.
    However, risk-based pricing is a very basic lending 
principle, and publishing insurers' proprietary underwriting 
data will crush competition within the auto insurance industry. 
Only those who have not spent time in the business, and haven't 
developed their own intellectual property, would suggest doing 
away with it.
    I yield back.
    Chairman Clay. The gentleman yields back. I now recognize 
the gentleman from North Carolina, Mr. Budd, for 5 minutes.
    Mr. Budd. Thank you for the time, Mr. Chairman. Also, thank 
you for the time in your district. It has a very nice barbecue 
restaurant. So, I look forward to having you in North Carolina 
so you can try some Davidson County, Lexington-style barbecue.
    Chairman Clay. Thank you.
    Mr. Budd. I also want to thank the witnesses for being here 
today. I have spoken on one of these two bills that we are 
considering, multiple times, and it is clear there isn't 
support in this committee for Congress to pull credit scoring 
data out of auto insurance underwriting. So as I mentioned in 
the past, auto insurance costs about $85 a month, on average, 
and that is in North Carolina. That is the fourth-lowest rate 
in the country. As we say in my district, and probably 
elsewhere, ``If it ain't broke, don't fix it.''
    So that said, the FAIR Study Act is new, and I have done my 
due diligence. While you call it a study bill, it is anything 
but, and it is certainly not fair, so quite a misnomer here.
    Compliance costs aside, the bill directs the Federal 
Insurance Office to publish all of the proprietary information 
that it collects from auto insurers on an annual basis. The 
bill would destroy the foundation of competition in the auto 
insurance market. Everybody who has seen a football game, or 
just anything on TV, has seen 15 ads for auto insurance, and 
they inherently know that it is a competitive market, with lots 
of options for consumers. Luckily, there is no way to quantify 
that.
    The Department of Justice, which is responsible for 
enforcing anti-trust laws, uses something called the 
Herfindahl-Hirschman Index. I have a couple of business degrees 
from pretty schools and I had never heard of that. But I have 
seen it recently with some bank mergers, and now I see it 
related to this.
    So when the score gets to 2,500 or above, the index signals 
market consolidation that is actually harmful to consumers, so 
it is a helpful index. But the Herfindahl-Hirschman Index for 
the property and casualty insurance industry--remember now, 
2,500 is harmful--but for the auto insurance industry, it is 
302, and that was in 2018. So, very low. And that is down from 
346, also another low number, in 1998. So, it has gotten even 
better in 20 years.
    Ms. Collins, can you explain for the committee the actual 
impact of the FAIR Study Act, if it were enacted? If the FIO 
published proprietary underwriting information from every 
participating auto insurer, what kind of pressure would it 
create for consumers?
    Ms. Collins. Thank you, Congressman. If proprietary 
information were to be made public, I believe that it would be 
hugely detrimental to consumers. As I noted at the outset, 
consumers are benefitted by a highly competitive market, which 
the auto insurance industry is, in that they compete against 
each other to most accurately match rate to risk, and that 
benefits consumers both in their choice in products and the 
level of protection that they feel that they need, and serves 
to keep prices as low as possible.
    And so, removing the ability of insurance companies to 
compete against each other to try to find the most effective 
ways to match rate to risk would serve to take away those 
benefits to the consumers.
    Mr. Budd. Thank you for that. My friends across the aisle 
claim that they want to stop too-big-to-fail financial 
institutions from forming or market monopolies taking hold, yet 
here is an example of a proposal that would kill competition in 
one of the most competitive markets in the country. So, 
Economics 101, the competition brings down prices for 
consumers--we all know that--which is what I thought was the 
original goal of these bills.
    But the irony is that these bills would actually hurt 
instead of help the policyholders. By eliminating and studying 
ways to reduce a vast amount of factors used in underwriting, 
things which would help these companies become more competitive 
and better consumers, including making proprietary underwriting 
information publicly available, what you are actually doing is 
raising rates for consumers who currently shop for insurance, 
again, in this very competitive market.
    So, a question. If insurance would have to price risk based 
on guesswork, it is an obvious conclusion that the least risky 
drivers will have to subsidize the riskiest drivers. So, Ms. 
Collins, how would you respond to this?
    Ms. Collins. Yes, Congressman, we would agree. By making 
insurance companies guess at what their exposure would be in 
order to remain solvent, they would necessarily have to 
increase rates just to meet their statutory obligation to their 
policyholders. So, we totally agree with that sentiment.
    Mr. Budd. Thereby hurting consumers.
    Ms. Collins. Absolutely.
    Mr. Budd. Thank you for your time.
    Chairman Clay. The gentleman yields back. Now, we go to the 
gentleman from Wisconsin, Mr. Steil, for 5 minutes.
    Mr. Steil. Thank you very much, Mr. Chairman. Thank you for 
holding today's hearing, and thank you to our witnesses for 
being here.
    Can I just start off by getting a show of hands if you 
believe that non-driving-related factors are predictive of 
risk?
    [show of hands]
    Mr. Steil. Three out of five, maybe.
    Mr. Heller. There are probably some that have some value, 
but not the ones we have spoken about today. I do not believe 
they are predictive of risk.
    Mr. Steil. Very good. I appreciate that insight. Ms. 
Collins, I would like to ask you, if we look at drivers' actual 
records, driving violations, amount of severity, and then you 
start to look at if there are other factors that an auto 
insurer might need to account for in the underwriting to cover 
operating costs such as the regulatory cost of providing 
insurance in a jurisdiction, the severity of auto accidents and 
the injuries they cause, the prevalence of auto theft, the 
likelihood of filing an auto claim, the probability of 
policyholders defaulting on their premiums or any debt owed as 
a result of an accident, or the rate of uninsured motorists 
nevertheless driving in any given State, and since insurance 
companies have a solvency obligation to operate in a safe and 
sound manner, should companies be prohibited by Federal law 
from including any of those pricing inputs or other pricing 
inputs that you are looking at into their underwriting models?
    Ms. Collins. Thank you, Congressman. Absolutely not. They 
should not be prevented from doing that. The objective of 
underwriting, again, is to match most closely the premium and 
the rate to the risk that is represented, and the more tools 
that are actuarily sound and on point to get closer to that 
ideal, the more successful that insurance company is going to 
be in getting the right product to the right consumer's risk, 
and be able to write broader risks for more consumers.
    Mr. Steil. Thank you. And I think it is worth pointing out 
the challenges of when we socialize risk. And so, all things 
being equal, with the average consumer's rates increase, 
companies can no longer use predictive and approved factors. In 
particular, in this instance we are talking about credit 
history.
    Ms. Collins. Yes, Congressman. Removing the innovation and 
the trend towards finding new ways to identify and measure risk 
would take us backwards in the United States to rather a crude 
version of underwriting, and it would harm consumers in that 
the insurance company would have to guess, again, to use the 
other Congressman's word, at what the risk might be, and 
therefore the lower-risk drivers would necessarily be 
subsidizing the higher-risk drivers in order to create that 
money for the pool to ensure that the insurance company could 
meet their obligation to their policyholders.
    Mr. Steil. And as we talked today, and we heard some of my 
colleagues discuss involving the Federal Government in what has 
traditionally been a State-regulated agency, could you provide 
a little color and describe the process by which companies 
identify and evaluate risk factors? And in particular, can you 
highlight the role that State regulators are playing in 
permitting the use of specific rating factors?
    Ms. Collins. Insurance companies use a multitude of risk 
factors. Not all insurance companies use all factors. As we 
have noted, the actuarial science shows that it is most 
successful when a combination of factors is in play. And this 
is important in the context of State regulation, because the 
State regulators review how insurance companies combine those 
factors, as well as the individual factors themselves, to 
ensure that nothing is unfairly discriminatory and that rates 
are not excessive or inadequate.
    Mr. Steil. So State insurance regulators are analyzing what 
constitutes unfair discrimination and what is prohibited at the 
State law level?
    Ms. Collins. Absolutely, and they do so robustly.
    Mr. Steil. I appreciate your testimony here today, and I 
yield back.
    Chairman Clay. The gentleman yields back. At this time, the 
gentleman from California, Mr. Sherman, who is also the Chair 
of our Subcommittee on Investor Protection, Entrepreneurship, 
and Capital Markets, is recognized for 5 minutes.
    Mr. Sherman. Mr. Chairman, I have been absent from this 
room because we had the briefing on the coronavirus by our Vice 
President. I am now totally reassured, maybe, and look forward 
to hearing from our witnesses.
    When I was 16, I was told that 16-year-olds are bad 
drivers. Ms. Collins, of course, 16-year-olds, when they first 
get their license, don't have bad driving records. Do most 
insurance companies charge you more when you are 16 than when 
you are 26, and is there a real correlation between being a new 
driver with a spotless record and not being a good risk for the 
insurance company?
    Ms. Collins. Thank you very much for the question. Yes, 
there is actuarial science to show that less-experienced 
drivers and younger drivers do pose a higher risk of loss, and 
that has been studied a multitude of times. And there was a 
NHTSA study that showed that there are additional factors 
associated with age. For example, the incidence of texting 
while driving tends to diminish as a driver becomes more 
experienced and older as well.
    Mr. Sherman. Is it a matter of driving experience? Some 
people get their license when they are 16. Some may first get 
their license when they are 26. Do most companies look at age 
or number of years driving or number of miles driven? Kids at 
my high school drove a whole lot of miles. At my wife's high 
school, even if you had your license, you took the subway. Is 
it inexperience in terms of years holding the license, 
inexperience in numbers of miles driven, or just age?
    Ms. Collins. I believe that insurance companies use a 
multitude of those factors to form a full picture of risk, but 
I would defer to Superintendent Dwyer to elaborate.
    Mr. Sherman. And while we do that, I will go to the other 
end of the age spectrum. When my mother was 89, she still had 
her driver's license. I wouldn't let me my kids drive with her. 
Ultimately, I persuaded her not to drive at all. She hadn't had 
an accident in at least a decade because she only drove like 12 
miles a month. Trust me. Those are miles you didn't want to be 
in her car. So is it legitimate, Ms. Dwyer, for them to look at 
either young or old age in determining the level of risk?
    Ms. Dwyer. When insurance companies look at any of those 
factors and file them with their rating plan, they have to 
provide the actuarial basis. So, you can't just guess.
    Mr. Sherman. Right. They have to show you statistics. What 
level of correlation or regression analysis--because some 
things correlate a little bit and some things are one to one. 
Is there any level of certainty or correlation that is 
necessary?
    Ms. Dwyer. I have an actuary look at every rate filing for 
automobile insurance filed in my State. I am not an actuary, so 
I am not absolutely sure on that. But I make sure that my 
actuary is satisfied with the level of correlation. So it has 
to be something significant, not a very vague correlation. It 
has to be something significant.
    Mr. Sherman. Is there any State that prohibits looking at 
age or experience rather than actual tickets and accidents of 
that individual driver?
    Ms. Dwyer. I don't believe so, but we could--
    Mr. Sherman. So as far as you know, every State would allow 
it? Mr. Heller?
    Mr. Heller. Thank you, Mr. Sherman, and I should mention I 
am also a constituent of yours, so I am happy to see you here. 
I believe that there are--while States don't prohibit that, 
there are several companies now, for example, who won't even 
ask how many miles you are driving, so they are not looking at 
some of the real, legitimate factors that do relate, that we 
can show the data. Instead, they turn to these other factors 
that we have talked about all day, like your credit score and 
your job title.
    Mr. Sherman. Well, I am with the California Auto Club, and 
they hound me 3 or 4 times before I finally am able to remember 
how many miles I have on each odometer on each coast, and then 
they give me a discount if I get the document in on time.
    Obviously, number of miles driven is important. 
Superintendent Dwyer, are there any States that require 
companies to look at such a relevant factor as how many miles 
do you drive every year?
    Ms. Dwyer. I don't believe so. However, we have that in 
most filings. Disclosure by the consumer is not necessarily the 
best way to determine that, from what I have heard from 
companies. They are getting this information through big data 
occasionally. But they are using it.
    Mr. Sherman. No, trust me. The Chinese don't know how many 
miles I drive each of my cars yet, as far as I know. But if we 
just look at whether you have had an accident recently, we are 
missing out on the fact that my high school friends had 
terrible attitudes towards driving, my mother had some 
problems, and I only drive a few miles here in Washington.
    Mr. Heller. Mr. Sherman, if I could clarify, though?
    Mr. Sherman. I will ask the chairman if I have time.
    Mr. Heller. Oh, I am sorry. Mr. Chairman, if I could just 
clarify one point that was made by the superintendent, very 
briefly. Just that California does require that miles are used 
in rating. That is all. California law does require that.
    Mr. Sherman. That is a good thing.
    Chairman Clay. The gentleman yields back. At this time, I 
am going to take 2 minutes to close, and in that 2 minutes, I 
am going to yield to my friend from Michigan, since this 
subject has generated quite a bit of discussion. It is her 
bill, so I yield to the gentlewoman from Michigan, Ms. Tlaib, 
for 2 minutes for closing remarks.
    Ms. Tlaib. Thank you, Mr. Chairman. Look, I understand that 
there is a whole formula within the industry, but I feel like 
the formula right now has led towards discriminatory practices, 
because the data and information out there is very clear, and I 
think it is very important for all of us. And I will work with 
colleagues on the other side of the aisle to actually have the 
Federal Insurance Office look at it, whether or not there is 
disparate impact in this formula.
    It is the Federal Government's job, and I am not trying to 
change State law. I am trying to ensure that people on the 
ground, people like my community, which is the third-poorest in 
the country, are not being directly discriminated against, 
based on these factors.
    And it is sincere. It is the fact that I have seen data 
that it is preventing them from owning their own homes, because 
they are paying these high rates. But I also feel like it is 
very much discriminatory and dehumanizing to be asked about 
education level, to be asked about marital status, and to see 
that somehow you are now going to be treated differently, 
solely based on your credit score.
    For me, having a driving-under-the-influence violation is a 
huge risk, but that person is going to pay less than the person 
who doesn't have a great credit score. Just the data in Florida 
is unbelievable, to see that somebody with poor credit is 
paying $3,826, and somebody with better credit is paying 
$1,400. What is going on here?
    These are proxies, and we are not going to allow them. Mr. 
Heller, we have to prohibit the collection of racial data by 
insurance, and we do that. But these are now being used as 
proxies.
    Prove me wrong that they are not, by allowing a disparate 
impact study to actually happen. What are you afraid of it 
showing? Prove us wrong by allowing the Federal Insurance 
Office to investigate this and look at this.
    Thank you so much, Mr. Chairman, for this hearing. I know 
many of my residents at home really do appreciate this.
    Chairman Clay. The gentlewoman yields back, and I now 
recognize the ranking member of the subcommittee, Mr. Stivers.
    Mr. Stivers. Thank you, and I will be fairly brief. I will 
conclude as I started. Thank you to the chairman for holding 
this hearing.
    Everyone in this room is opposed to discrimination. There 
was great testimony by Ms. Dwyer about what our insurance 
commissioners at the State levels are doing to make sure we 
stop discrimination based on factors that they shouldn't use to 
discriminate. But we also need to figure out how to create an 
insurance system that is priced fairly for everyone.
    And generally, under McCarran-Ferguson, I trust our State-
based regulators to do that job. I think there have been some 
really good studies that have been done, including the Stanford 
University study that shows if you move away from factors and 
only do driving factors, you actually make the situation worse 
for African Americans and other folks who face some 
discrimination in the way that they are pulled over and the way 
they are ticketed.
    So, there may be no perfect system. There may be no perfect 
underwriting factors. And I am not saying that there isn't a 
study we couldn't work on. But the study as it is worded in 
this bill that we talked about today has a lot of conclusions 
that aren't based on any facts. And I wouldn't want to support 
a study that already has conclusions in it. That is not fair. A 
study should be a study that looks at things fairly, and then 
makes conclusions based on what is observed, not conclusions 
based on when you authorize the study.
    So while I would be willing to work on that with the 
gentlelady from Michigan, the chairman or the gentlelady from 
Michigan, I think we would have to do that in an appropriate 
way that doesn't start with conclusions. It might end with 
conclusions, but it shouldn't start with conclusions, and that 
is my concern about this study that was proposed today.
    I think there has been a lot of great testimony by all of 
the witnesses. Again, I want to thank all of the witnesses for 
your perspectives, and while I trust our State-based 
regulators, I am not saying there is not a Federal role. I 
would want to make sure if there was a Federal role, it was 
done in a thoughtful way, without conclusions up front. I yield 
back, Mr. Chairman.
    Chairman Clay. The gentleman yields back, and I would like 
to thank our witnesses for their testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    This hearing is now adjourned.
    [Whereupon, at 3:45 p.m., the hearing was adjourned.]

                            A P P E N D I X


                             March 4, 2020
                             
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