Paul Blume, senior vice president of state government relations for the Property Casualty Insurers Association of America (PCI), calls the CFA study a “misguided public policy prescription to increase affordability of auto insurance that would be counterproductive and hurt the low- and moderate-income (LMI) motorists they claim to represent.”

The policies proposed through the CFA study “would result in higher costs and fewer choices for all consumers,” Blume adds.

The CFA report is critical of state insurance regulators, saying they could do more to ensure that mandated auto insurance coverage is fairly priced and affordable for these families “so that they have greater access to car ownership and jobs.”

The research for the study was conducted by CFA Executive Director Stephen Brobeck and Director of Insurance J. Robert Hunter with financial support from The Ford Foundation.

“In some areas, many responsible lower-income drivers are required to spend more than $1000 a year for liability coverage that is often unfairly priced and provides no real insurance protection to them,” Brobeck says.

Hunter is a former Texas insurance commissioner and federal insurance administrator.

“State insurance commissioners have the ability to take steps that would equitably reduce auto insurance costs for responsible lower-income drivers, thus increasing access to car ownership and employment in a difficult economic environment,” Hunter says.

Brobeck says the study found evidence of unequal treatment.

It is “difficult to avoid the conclusion that major insurers are far more interested in selling auto insurance to higher-income families,” Brodbeck adds.

He says insurers “are well aware that upper-income families are much more likely to own two or three expensive cars, with comprehensive coverages, than are LMI households, who often purchase just minimum liability coverage on an old car.”

“Even if insurers earn higher profit rates on lower-income policies, they earn far more dollars per policy on upper-income policies, in part because they can cross-sell other types of insurance,” Brobeck argues.

The Insurance Information Institute points out the CFA analysis came only weeks after another organization—the National Association of Insurance Commissioners (NAIC)—found that the typical U.S. motorist had seen his or her auto insurance expenditures drop every year between 2005 and 2009.

“Auto insurance provides important, cost-effective financial protections to millions of Americans, and most drivers have dozens of auto insurers constantly competing for their business,” said Robert Hartwig, president of I.I.I.

Hartwig says the percentage of median family income spent on auto insurance has dropped sharply in recent years, as has the percentage of drivers who pay more for their auto insurance coverage through their state's assigned-risk pools, also known as the residual market.

PCI's Blume says the CFA has the “flawed impression” that overregulation will keep insurance rates down.

“Ultimately, overly restrictive laws and regulations have been shown time and again to reduce consumer choice and inhibit market innovations,” Blume says. “This approach has adverse consequences which mean higher prices and fewer choices for consumers.

The CFA's opposition to several common insurance underwriting practices such as credit-based insurance scoring is counter to the empirical data that show these factors are strong predictors of risk, Blume adds.

“An insurance score only measures risk-relevant variables (i.e., payment history, public records, etc.) that are indicators of potential future risk,” Blume says.

“Living within one's means and paying bills on time are not traits that are restricted to any particular income bracket: they are universal qualities that exist regardless of income,” he continues.