Consumer Groups, Insurance Entities Submit Comments on Federal Insurance Office Auto Coverage Affordability, Availability
Jun 11, 2014
With the comment period now closed as of June 9, 2014 on its Request for Information about the availability and affordability of personal auto insurance, the Federal Insurance Office (“FIO”) logged over 50 collective submissions on the issue, including one letter signed by 33 consumer organizations. Twenty other individuals and entities also provided comments, including the Property Casualty Insurers Association of America, the Insurance Information Institute, Allstate and the California Department of Insurance.
One insurance industry association drew harsh criticism from the Consumer Federation of America (“CFA”) for its feedback, which featured statistics designed to show that low-income Americans spend proportionately more money on cigarettes and alcoholic beverages than they do on auto insurance.
“Many households spend nothing on these products and this abuse of statistics reveals the underlying disrespect that at many auto insurers have for low-income drivers,” CFA Director of Insurance and former Texas Insurance Commissioner J. Robert Hunter said.
To read the CFA response in its entirety, click here.
Input for the FIO study was solicited from state insurance regulators, consumer organizations, insurance industry representatives, policyholders, academia and others as appropriate on a reasonable and meaningful definition of “affordability.” Input was also sought on the metrics and data that the FIO should use to monitor the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income persons have access to affordable auto insurance
In its April 2014 Request for Information, the FIO explained that personal auto insurance is considered to be among a number of insurance products that provide essential financial security to consumers, in addition to satisfying certain state laws or requirements, including, but not limited to, homeowners insurance, life insurance and annuities.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 provides the FIO with a number of authorities, including monitoring the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income persons have access to all types of affordable insurance products (except health insurance).
Given this, the FIO is proposing to monitor the availability and affordability of personal auto insurance for the following reasons:
1. With the exception of New Hampshire, all states and the District of Columbia require consumers to maintain auto liability insurance as a condition of automobile ownership.
2. The percentage of uninsured motorists countrywide has hovered around 14 percent between 2002 and 2009.
3. Owning an automobile is likely associated with a higher probability of employment and other factors associated with economic well-being.
4. Industry representatives assert that auto insurance has become more affordable over time, but consumer representatives disagree, saying auto insurance has become less affordable for low-income consumers and minorities.
While the definition of “availability” is largely settled, the definition of the “affordability” of personal auto insurance remains unclear, the FIO said. In 2013, the Availability and Affordability Subcommittee of the U.S. Treasury Department’s Federal Advisory Committee on Insurance (“FACI”) Subcommittee suggested the following definition for affordability:
“Affordability means that the cost of [personal auto insurance] is a reasonable percentage of a consumer’s income.”
The FIO explained that measuring affordability according to the FACI Subcommittee definition is a difficult and subjective task. One approach may be to interpret personal auto insurance premium payments as “affordable” if such payments do not prohibit individuals and/or families from purchasing other required necessities. Or, personal auto insurance may be interpreted as “affordable” if it is actually purchased by individuals and/or families.
Recent studies have used various metrics to measure the availability and affordability of personal auto insurance. These include:
1. Market share of the top 10 writers of personal auto insurance
2. Market share of the residual market
3. Average auto insurance premium
4. Loss ratio
5. An affordability index calculated by dividing the average auto insurance premium by median household income.
These metrics may be calculated only for the auto insurance coverage mandated by most states (e.g., bodily injury and property damage) or all auto insurance coverage (e.g., bodily injury, property damage, uninsured/underinsured motorist, collision and comprehensive).
However, a data source is needed to monitor the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income persons have access to affordable auto insurance. While data on average personal auto insurance premium by coverage is collected by the National Association of Insurance Commissioners, it is expected that other data sources will likely be needed.
To view an NAIC chart of state-by-state laws relating to auto insurance, click here.
To view the December 2013 results of an NAIC study entitled “Programs and Initiatives Related to the Availability and Affordability of Automobile Insurance,” click here.
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