Federal Insurance Office Issues Request for Information on Personal Auto Insurance Availability, Affordability

Apr 10, 2014


Indicating the growing importance of the issue, the Federal Insurance Office (“FIO”) issued a Request for Information today, April 10, 2014 entitled “Monitoring Availability and Affordability of Auto Insurance.”

With comments due by June 9, 2014, the call for information asks for input from state insurance regulators, consumer organizations, representatives of the insurance industry, policyholders, academia and others as appropriate regarding:

  • A reasonable and meaningful definition of “affordability”
  • 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

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 affordable insurance products regarding all lines of insurance, except health insurance.

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.

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.”

In its notice today, 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.

Studies have used various metrics to measure the availability and affordability of personal auto insurance.  These include:

1.  The market share of the top 10 writers of personal auto insurance

2.  The market share of the residual market

3.  The average auto insurance premium

4.  The 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, other data sources will likely be needed.

In its solicitation for comments, the FIO asks that supporting and illustrative information (where appropriate and available) be included by respondents regarding:

1.  A reasonable and meaningful definition of “affordability of personal auto insurance”

2.  The appropriate metrics that should be used in order to monitor the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income persons have access to affordable personal auto insurance

3.  The data source(s) 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.

To view today’s Request for Information and submit comments directly online at www.Regulations.gov, go to:  http://www.regulations.gov/#!documentDetail;D=TREAS-DO-2014-0001-0001

NAIC Auto Insurance Study Group Reviews Final Availability, Affordability Study Results Report

At the recent National Association of Insurance Commissioners’ 2014 Spring National Meeting the Auto Insurance Study Group (“Study Group”) reviewed the recent results of study entitled “Results of State Survey Concerning Programs and Initiatives Related to the Availability and Affordability of Automobile Insurance,” which concluded that that states and territories have taken a variety of actions to address the issue.  These range from activities common to most states, such as the creation of rate comparison guides or the implementation of restrictions on underwriting guidelines, to initiatives unique to a small number of states such as comprehensive programs to provide low-cost liability policies to low income drivers.

At the meeting, the Study Group adopted revisions to the report to clarify that it is a “compendium of information related to the pricing of auto insurance.”  To view the meeting materials, which contain several appendices from the NAIC’s work on the issue since 1992 and a proposed data collection grid, click here.

In comments submitted on the project during early 2013, the Property Casualty Insurers Association of America (“PCI”) emphasized its advocacy insurers’ risk-based pricing approach, as governed by applicable law.

PCI reminded that insurers take a risk-based pricing approach, as governed by applicable law.  With regard to
availability and affordability, PCI outlined its support for measures that reduce risk–and therefore reduce cost–for all drivers, without regard to income.  PCI noted that to the extent costs are reduced, there may be a particular benefit to consumers with lower incomes.

PCI identified the following industry initiatives intended to reduce costs:

1.  Highway Safety Measures–The industry has supported the work of the Insurance Institute for Highway Safety and Advocates for Highway and Auto Safety.  PCI contends that the industry’s support of safety measures such as strong seatbelt laws, graduated drivers licensing programs, text messaging bans, more vigorous enforcement of Driving While Under the Influence laws and tighter blood alcohol standards have reduced highway deaths and injuries and reduced costs.

2.  Anti-Fraud Efforts–The insurance industry has taken steps to prevent, detect and prosecute insurance fraud.

3.  Efforts to Reduce Health Care, Auto Repair and Litigation Costs–Insurers have worked with state governments to implement health care cost containment measures in some states, which PCI contends have lowered auto injury costs for the benefit of policyholders.  Similarly, the industry has supported measures to reduce auto repair costs, such as allowing alternatives to original equipment manufacturers repair parts.  And “[w]here necessary, insurers have supported the elimination of incentives for frivolous lawsuits” to reduce litigation costs.

4.  Usage-Based Insurance (“Pay-As-You Drive”)–PCI observed that information collected from telematics devices can be used to distinguish lower risks from higher risks and make prices more competitive, accurate and equitable.

5.  Opposition to Mandatory Insurance and Increased Financial Responsibility Laws–PCI has opposed mandatory liability insurance and increases in financial responsibility limits, which PCI contends can impose an unreasonable burden on those who can afford to purchase only minimum coverage.

6.  No Pay-No Play Laws–Insurers have supported laws that prohibit uninsured drivers from collecting damages from insured drivers, which PCI contends help reduce costs and potentially reduces the number of uninsured drivers.

7.  Low-Cost Policies–PCI cited its work with states such as New Jersey and California to implement measures that create lower cost minimum policies for low income drivers.

8.  Use of Technology–PCI noted insurers’ use of technology to increase efficiency and thereby reduce costs.


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