Americans are paying an estimated $4 billion a year in "overcharges" for auto insurance, the former chief of the Federal Insurance Administration said in a study released yesterday.

J. Robert Hunter based the estimate on the practice of most states in approving rates without regard to the profits on investments of policyholders' funds not needed by insurers to pay current claims.

He figured overcharges in the District of Columbia at potentially $9.8 million or 11 percent of premiums; in Maryland at $69.3 million, or 11 percent; and in Virginia at $77 million, also 11 percent. Nationally, he calculated, car owners could save 12.2 percent on premiums of $32.67 billion.

The study was distributed at a press conference called to announce formation of the National Insurance Consumer Organization, the first major nonprofit watchdog group with the central aim of protecting consumers in dealings with an industry that has 2 1/2 times the assets of the oil industry and that absorbs nearly 12 percent of the disposable personal income available to the average citizen.

Hunter is president of NICO. He launched it with about $100,000 in contributions from individuals and foundations. Ralph Nader, opening the press conference with his blessing of NICO, gave $25,000 of his personal funds, he said in reply to a reporter's question. Nader also wrote the foreword to the study. "Taking a Bite Out of Insurance."

Working with Hunter will be two former state insurance commissioners who are NICO directors, James H. Hunt of Vermont, an actuary specializing in health and life coverage, and Howard B. Clark, a lawyer, of South Carolina.

Hunter, calling NICO "long overdue," said: "For decades, policyholders have needed to organize if they were to have any chance for reform of insurance abuses, given the powerful and large lobby of the insurance industry in each state and federally. The cost of this massive insurer lobbying effort is, incredibly, allowed by all states to be built into rates paid by the very policyholders whose interests are often the opposite of the insurers."

NICO's first major investigations will be of practices ranging, Hunter said, "from how rates are made to how policies are sold, from how claims are settled to how insurers select [those] with whom they are willing to do business." A proposal for national insurance cooperatives selling all types of coverage "under full control of the policyholders" will be developed, he added.

In estimating the potential $4 billion, 12.2 percent reduction, Hunter said that in trying to prevent excessive rates, state insurance commissioners either monitor them or set a profit margin, usually about 5 percent of premium income. But they often don't allow for insurers' profits on invested premiums. Thus, Hunter said, "Consumers give insurers what amount to interest-free loans every time they pruchase insurance or pay renewal premiums."

Although the situation was known to the industry and government regulators as early as 1933, Hunter said only 17 states require investment income to be given any weight whatsoever. Of the 17 states, 13 -- including Viginia -- use an industry-developed method that Hunter said "seriously understates the impact of investment income." Maryland is one of the four states using an approach found by Hunter to be more realistic.

But only one state, Massachusetts, fully reflects investment income in its ratemaking process, Hunter said. He developed the $4 billion estimate by extrapolating its application nationwide.

In addition to Maryland, the states making an attempt to give fair weight to investment income, even if falling short of Massachusetts, are New Jersey and Oklahoma, Hunter said. In the District of Columbia, he noted, only Travelers, among 10 leading insurers and insurance groups, discloses income generated by investment.