An Insurance Research Council (IRC) study finds that the average auto-insurance expenditure in relation to median income has declined from the 1990s into the 2000s, but a consumer representative warns against confusing improvement with actual affordability.
The IRC study, "Auto Insurance Affordability," says the ratio of average auto-insurance expenditure to median income fell by more than 9.5% from the '90s to the '00s. Analyzing only the lowest-income quintile, the study says the ratio declined by 9% over that time, "implying a strong improvement in affordability from decade to decade for those in the lowest-income quintile."
Looking at the 1990s to the 2000s, all states but Alaska, Florida, Louisiana, Michigan, Montana and Wyoming showed a lower ratio in insurance expenditure to median income, according to the study. All 50 states and the District of Columbia showed a lower ratio when comparing 2001-2005 to 2006-2010.
The IRC says, "The long-term trend of improving affordability is evident," noting that the insurance expenditure to income ratio both overall and for the lowest-income quintile hit 20-year lows in the late 2000s.
Consumer Federation of America's Director of Insurance, J. Robert Hunter, however, says CFA conducted a series of five reports looking at the affordability question from many angles and did not come to the conclusion that coverage is affordable for low- and moderate-income Americans.
He says he did not see the entire IRC report, but briefed on its conclusions, he says "improvement" does not necessarily mean "affordable." Mentioning CFA's research, he says, "So, when we show that the lowest quintile of Americans are asked to pay $1,000—which is more than 10% of their income—for the required coverage, [the IRC is] saying it used to be $1,025. So a guy who could afford, say, $400 for insurance now misses by 'only' $600, not $625 as earlier. Where is Charles Dickens when we need him?"
He contends that CFA's research used current income levels and current rates. "I guess IRC's point is that we would have seen something worse had we done the research 10 years ago, i.e., even more unaffordable."
The IRC, which took its insurance-expenditure data from the National Association of Insurance Commissioners and its median-income data from the U.S. Census Bureau, addressed the philosophical debate regarding the term "affordability" in the study, noting that there is no "universally accepted measurement of auto-insurance affordability." The study indicates that insurance-regulatory terms such as "not excessive," "inadequate" and "unfairly discriminatory" do not necessarily correlate to the term "affordability" as it relates to "being within the financial means of most people."
But the IRC says insurers are being asked, in a time of declining median household income related to the recessionary cycle, "how they are attempting to solve the problem and improve auto-insurance affordability," and the IRC contends there is "little evidence that auto insurance is becoming less affordable for the poor or middle class."
The study looked at several factors to determine what was driving affordability improvements, such as competition, regulation, government involvement via residual markets, generosity of the injured compensation system, uninsured motorists and the unemployment rate. "More affordable auto insurance was found to be associated with more competitive auto insurance markets, less government regulation, smaller residual markets, less rich compensation for injuries, fewer uninsured motorists and lower unemployment rates," the study asserts.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.