The Federal Insurance Office has initiated a study looking intothe affordability and availability of auto insurance.

In an April 10 notice posted to the Federal Register, the FIOsays it is seeking comments by June 9 from regulators, consumergroups, industry representatives, policyholders, academia andothers.

Specifically, the FIO is looking for, "A reasonable andmeaningful definition of affordability," as well as "the metricsand data FIO should use to monitor the extent to whichtraditionally underserved communities and consumers, minorities,and low- and moderate-income persons have access to affordable autoinsurance."

The FIO says it is acting under its authority to "monitor theextent to which traditionally underserved communities andconsumers, minorities and low- and moderate-income persons haveaccess to affordable insurance products regarding all lines ofinsurance, except health insurance."

The FIO initiative is driven in part by concerns that the datacollected by the National Association of Insurance Commissionersmay not be adequate and that "other data sources will likely beneeded," according to a regulatory bulletin from industry law firmNelson Levine de Luca & Hamilton, LLC.

Nelson Levine lawyers say the FIO has the authority to collectinformation directly from the insurance industry that "it mayreasonably require" in carrying out its duties.

Before it can do that, the bulletin says, the FIO must determinethat the information is not available in a timely manner fromrelevant federal agencies, state regulators and publicly availablesources. The FIO also has subpoena power in certain circumstances,Nelson Levine says in the bulletin.

Regarding its interest in auto insurance, the FIO notes thatauto liability is mandatory in all states except New Hampshire, andthat owning an automobile "is likely associated with a higherprobability of employment and other factors associated witheconomic wellbeing." Furthermore, the FIO says the percentage ofuninsured motorists nationwide has "hovered around 14% between 2002and 2009."

The FIO also says, "Industry representatives assert that autoinsurance has become more affordable over time but consumerrepresentatives assert auto insurance has become less affordablefor low-income consumers and minorities."

On the question of affordability, the FIO says, "While thedefinition of availability is largely settled, the definition ofthe affordability of personal auto insurance remains unclear."

The FIO says the Availability and Affordability Subcommittee ofthe Treasury Department's Federal Advisory Committee on Insurance(FACI Subcommittee) suggested a definition for affordability couldbe ensuring the cost of personal auto insurance is "a reasonablepercentage of a consumer's income." But the FIO says that can besubjective and difficult to discern.

"One approach may be to interpret personal auto insurancepremium payments as affordable if such payments do not prohibitindividuals and/or families from purchasing other requirednecessities," the FIO says. "Or, personal auto insurance may beinterpreted as affordable if it is actually purchased byindividuals and/or families."

Insurance consumer advocates have been pressing for FIOinvolvement since December 2012, when they brought the issue up atan NAIC winter meeting.

The NAIC responded by issuing a report at its recent SpringNational Meeting in Orlando which concluded that that states andterritories could take a variety of actions to address the issue,according to lawyers at Colodny, Fass, Talenfeld, Karlinsky, Abate& Webb, P.A., in Florida.

CFTKAW lawyers say the NAIC report proposed that these actionsshould range from activities common to most states, such as thecreation of rate comparison guides or the implementation ofrestrictions on underwriting guidelines, to initiatives unique to asmall number of states such as comprehensive programs to providelow-cost liability policies to low-income drivers.

Regarding the FIO taking up the issue now, Consumer Federationof America's Director of Insurance Bob Hunter says, "With millionsof low- and moderate-income Americans struggling to affordstate-required auto insurance and insurers constantly adding newhighly questionable factors like education, occupation andelasticity of demand that drive up the cost to those least able toafford coverage, FIO's interest is not only necessary, it isurgent."

Jimi Grande, senior vice president of federal and politicalaffairs for the National Association of Mutual Insurance Companies,says, "We can appreciate that the FIO is seeking input tohelp establish a metric for determining availability andaffordability of insurance, which went undefined in the Dodd-FrankAct. Unfortunately, this is an exercise in defining the highlysubjective. There are no authoritative standards that determinewhat constitutes a properly available or affordable insuranceproduct. 

"Whenever anyone has tried to force a definition, by necessityit has resulted in extremely vague criteria, which are open to wideregulatory and judicial interpretation, and which have been used tosubject the industry to arbitrary rules. That said, we understandthat that the FIO has a job to do and NAMIC will work to provideFIO with our views on approaching the issue, and how such adefinition should and should not be applied with regard to FIO'sduties."   

The FIO says comments may be submitted electronically throughthe Federal eRulemaking Portal: http://www.regulations.gov, or by mail to the FederalInsurance Office, Attention: Lindy Gustafson, Room 1319 MT,Department of the Treasury, 1500 Pennsylvania Avenue NW.,Washington, DC 20220.