Statement
by Deborah Bell, President
Texas National Organization for
Women (NOW) congratulates the Texas
Legislature for passing the
“cents-per-mile” car insurance bill
- House Bill 45 - signed into law by
Governor Rick Perry. By adopting legislation NOW developed, lawmakers have taken a
major step toward 1) making compulsory
insurance work, 2) eliminating redlining
and the stigma it creates, and 3) ending
overcharging to insure cars driven less
than average.
The new option to buy miles of
protection as needed (added to the
odometer reading at a cents-per-mile
rate) will enable a car owner for the
first time to individually control
insurance cost by the amount the car is
used.
The law as passed gives insurers
permission to offer the cents-per-mile
option to whomever they wish.
Texans should now demand that
their insurers make this option
available to every one of their insured.
We need the per-mile alternative
to fixed dollars-per-year prices that
are forcing millions of cars to go
uninsured.
For example, owners of cars in a
certain insurance price class - based on
territory, car use and type, and driver
type - now paying $500 per year in fixed
installments could be offered the option
of buying miles as needed at 5.0 cents
per mile.
Compulsory insurance seems to work in
upper-income zip codes where most people
can afford to keep insurance on cars
driven less than average.
Because these cars cost insurers
proportionately less in claims, they
bring in extra profits and insurers
privately call landing their business
“skimming the cream.”*
Insurers use extra profits from
“cream” customers to compete by
holding car insurance prices down for
their preferred customers who have many
other insurance needs.
Customers typically skimmed and
overcharged are those who commute by
carpool, bus or bicycle, and also women,
older people, and households with more
cars than drivers.
In low
income zip codes, insurers redline many
cars to higher “nonstandard” prices
- not because their drivers are less
careful, as insurers encourage everyone
to believe - but because of the scarcity
of “cream” to hold prices down.
What really happens is that
miles, costs, and insurance prices (per
car) spiral up where high insurance cost
and strong enforcement increase the
incentive for ever more drivers to share
fewer insured cars.
The new law directs the Insurance
Commissioner to adopt by year’s end
the few regulations needed (e.g., adding
to the car’s ID card the odometer
reading at which insurance expires
unless more miles are bought).
Companies may begin insuring
under the option January 1, 2002.
But if they then choose to
withhold the option in order to protect
their extra profits from insuring
little-used cars, newly informed
consumers can step up their demand for
cents-per-mile rates and even turn to
the Legislature to compel companies to
offer it.
That is only reasonable in view
of the fact that the Legislature compels
Texans to buy insurance on motor
vehicles regardless of how little they
are driven, if at all.
We are
pleased to acknowledge the leadership on
the cents-per-mile option in 1999 by
Fort Worth Rep. Lon Burnam and this year
by San Antonio Rep. Ruth Jones
McClendon, by Beaumont Rep. Joe Deshotel,
by Chair of the House Committee on
Insurance, Amarillo Rep. John Smithee,
and by El Paso Senator Eliot Shapleigh.
* Occasionally
in public, for example:
In 1961, in a professional paper
on automobile insurance pricing called
"Any room left for skimming the
cream?" Proceedings of the
Casualty Actuarial Society, Vol. 47,
p. 30
(1961); and recently in insurance
agent testimony, April 6, 1999 before
the House Insurance Committee about
companies “who are skimming by use of
1-800 numbers,” which is quoted in the
July, 2000 Report to the Texas House
Committee on Insurance titled
"Why the standard automobile
insurance market breaks down in low
income zip codes", by Patrick Butler, on page 25.
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