The U.S. Department of the Treasury's Federal Insurance Office (“FIO”) has adopted a methodology for monitoring the affordability of automobile insurance.
Title V of the Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the FIO to monitor the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income (“LMI”) persons have access to affordable insurance products regarding all lines of insurance other than health insurance.
“Access to affordable auto insurance is crucial for consumers who commute to work, drive kids to school, and meet the needs of their families,” said Michael McRaith, the director of the FIO. “This new methodology reflects important feedback FIO has received from a number of key stakeholders, and it is a meaningful step toward better understanding the affordability of auto insurance for consumers and underserved communities all across the country.”
In April 2014 and July 2015, FIO sought comments regarding the methodology from stakeholders, including state insurance regulators, consumer organizations, representatives of the insurance industry, policyholders, and academics, among others. The FIO said that, after carefully considering all the comments received, along with additional research and consultation, it adopted a method to measure the affordability of automobile insurance.
In particular, the FIO said that it will determine affordability using an affordability index calculated by dividing the average annual personal automobile liability premium by the median household income for ZIP codes identified as being majority-minority or majority-LMI. It said that it will presume that personal automobile liability insurance is affordable for “affected persons” if the affordability index is less than or equal to two percent.
The FIO said that it will study the affordability of automobile insurance using the methodology annually. The FIO added that it also will obtain and analyze aggregated premium data and will use data publicly available through the U.S. Census Bureau.
Robert Gordon, senior vice president, policy development and research, at the Property Casualty Insurers Association of America (“PCI”) said in a statement that, “PCI appreciates FIO's collaboration and constructive focus on the mandatory minimum auto insurance low-income consumers need to own a car. We remain concerned, however, that the final methodology remains flawed by declaring an artificial income level to determine affordability without reference to other household expenditures or consideration of risk or cost drivers as PCI had suggested.”
Mr. Gordon added, “Individual finances, wealth, and discretionary income may vary greatly from family to family. For most consumers, the cost of buying a car and maintaining and fueling it far exceed any insurance costs, making the regulatory fixation with insurance affordability somewhat misdirected. In particular, rapidly escalating distracted driving, traffic congestion, and alcohol and drug use have been negatively impacting auto accident frequency and loss costs, which are the primary determinants of insurance rates and affordability. PCI will continue to work with FIO and state insurance regulators to develop real solutions addressing these concerns.”
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].