When Congress created the Federal Insurance Office in 2010 aspart of the Dodd-Frank financial regulation reform legislation, itdirected the new agency to monitor the extent to which“traditionally underserved communities and consumers, minorities,and low- and moderate-income persons have access to affordableinsurance products regarding all lines of insurance, except healthinsurance.”

FIO published a notice in April inviting public comments onthis matter, with specific reference to automobile insurance. Toits credit, FIO acknowledged that “the definition of theaffordability of personal auto insurance remains unclear,” notingthat when it asked its advisory council to define “affordability”in the context of insurance, the best it could do was to suggestthat “affordability means that the cost of [personal autoinsurance] is a reasonable percentage of a consumer's income”—whichbegs the question of what constitutes a “reasonable” percentage ofincome.

So FIO asked commenters to provide their own definitions of“affordable,” and to suggest “the metrics and data FIO should useto monitor the extent to which traditionally underservedcommunities, minorities, and low- and moderate-income persons haveaccess to affordable automobile insurance.”

In response, NAMIC agreed that “affordability” is inherentlysubjective and can probably never be defined to everyone'ssatisfaction. But that doesn't mean it's impossible for FIO tocomplete the task that Congress assigned it.

We suggested that FIO focus on the question: How much do low-and moderate-income households spend, both in dollar amounts and asa percentage of household income, on automobile insurance relativeto what they spend on other essential and non-essential goods andservices?

The answer would help FIO understand how automobile insuranceexpenditures fit within the broader spending habits of low- andmoderate-income consumers. That, in turn, would allow FIO to drawsome meaningful conclusions in the absence of a formal definitionof “affordability.”

The Consumer ExpenditureSurvey, published annually by the U.S. Bureau of LaborStatistics, contains detailed information regarding consumerexpenditures on a vast array of goods and services, including autoinsurance. In 2012, households in the lowest and second lowestquintiles spent 2.0% and 2.3%, respectively, on automobileinsurance. By comparison, households in both quintiles spent 2.4%of their income on “audio and visual equipment and services.” Indollar terms, the lowest income quintile spent $511 on autoinsurance and $530 on A/V products.

Although CES's figures are only averages based on survey data,they are a reliable indicator of how consumers actually spend theirmoney (otherwise the BLS wouldn't bother to compile and publishthem every year). And the CES data suggest that the amount evenlow-income consumers pay for auto insurance appears to bereasonable.