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A new report from Citizen Action Wisconsin, a union-funded consumer watchdog group, blasts the trade association representing the auto insurance industry for projecting in 2009 that the “Truth in Auto Insurance” legislation would lead to premium increases greater than 33 percent. Citizen Action says rates have barely increased in 2010. But the Wisconsin Insurance Alliance says it’s too soon to tell what the legislation’s effects will be.

The legislation is most known for requiring all drivers to purchase car insurance, a requirement that took effect in June. Wisconsin became the second-to-last state in the country to implement such a requirement, which was designed to reduce the number of uninsured motorists. Andrew Franken, president of the Alliance, argues, however, that the legislation’s other provisions – including a large increase in minimum coverage levels – will raise costs so some drivers can’t afford coverage, thereby driving down coverage rates.

“The people that have been hurt the most are the poor and middle income families,” he says. The Alliance has no hard data yet on premium increases, Franken says, but he estimates that they’ve climbed between 10 and 15 percent since the legislation was passed. “That’s real world, out-of-pocket expenses,” he says, criticizing Citizen’s Action’s findings, which relied on rate increases reported to the state Insurance Commissioner.

Citizen Action says that in 2010, auto insurance rates actually grew at a much lower rate (0.2 percent for the state’s 11 largest insurers) than the state’s historic average of 3.3 percent each year. It also cites a national ranking by Insurer.com that found in April that Wisconsin has the fourth lowest car insurance premiums in the country.

Robert Kraig, executive director of Citizen Action, disagrees with Franken’s contention that the report jumped the gun. “These standards are in effect. Any increase would have happened by now,” he says. Kraig says the group reviewed rate filings for the 11 top insurers, which were filed in mid-2009 or in early 2010. Gov. Jim Doyle signed the 2009-2011 biennial budget in June 2009. The changes in policy requirements took effect in January of this year.

In one fell swoop, they moved Wisconsin from having some of the lowest coverage requirements in the country to having some of the highest. Drivers are also now required to buy “uninsured motorist” coverage, which applies to accidents where the at-fault driver lacks insurance. Franken says two other provisions are expected to raise costs for insurers over time. One allows drivers who own multiple auto insurance policies to draw from all of their uninsured motorist benefits as a result of a single accident. Another prevents insurers from subtracting worker’s comp or other benefits (“reducing clauses”) from payouts on uninsured motorist benefits.

“It’s way too early to have any data on most of these provisions,” Franken says. “This report is not worth the paper it’s written on.”

Citizen Action claims that auto insurers around the country (and also in Wisconsin) enjoy large profits and were able to absorb the effects of the auto insurance legislation without significant rate increases. “There is plenty of room for them to pay for high standards,” Kraig says. “This is an extremely lucrative and profitable industry.”

In 2009, according to the state Insurance Commissioner, the top ten providers of private passenger auto insurance in the state (which make up about 57 percent of the market) averaged “loss ratios” of 60 percent. A loss ratio is the percentage of premiums collected that a company pays out in claims. American Family Insurance, the largest seller of car insurance policies in the state, collected about $482 million in premiums in the year and paid out $295 million in claims for a loss ratio of about 61 percent.

Kraig compares the ratios to those maintained by health insurers, a comparison Franken argues is unfair because of the differences between the two industries. According to a 2008 report by Citizen Action, loss ratios for health insurers in the state average about 82 percent.

Money not spent on claims can be used for company overhead, reserves or to pay costs of litigation. Franken notes that auto insurers are often required to defend their customers in court.

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