Cigarettes, Alcohol and Auto Insurance: Groups Weigh in on Affordability

Those commenting include insurance companies, property and casualty trade groups, consumer groups, actuaries, state regulators and the Insurance Information Institute.

The comment period closed Monday. The FIO initiative was partly driven by concerns that the data collected by the National Association of Insurance Commissioners may not be adequate and that "other data sources will likely be needed," according to a regulatory bulletin from an industry law firm.

A comment letter from consumer groups led by the Consumer Federation of America touched on that very issue.

The letter urged the FIO to collect data from insurance companies in order to assess the affordability of auto insurance for low- and moderate-income Americans and those living in historically underserved communities. 

The data collected should be precise enough to indicate the actual premiums insurers charge drivers, rather than average rates that obscure the wide range of premiums that companies charge to good drivers with different socio-economic characteristics and the factors that tend to drive up prices for low- and moderate-income and minority drivers, the consumer-group letter says.

Moreover, the letter says, FIO should work with regulators and, as necessary, use its own authority under the provisions of the Dodd-Frank Act to collect data directly from insurance companies in order to ensure the most accurate information is available.

Cigarettes and alcohol? NAMIC, CFA spar over comments

The National Association of Mutual Insurance Companies says in its letter that the federal government should avoid imposing any regulations on insurers to impose "affordability." The letter says, "If consumers can choose to spend more of their income on alcohol and tobacco, and also more on television sets and cable service, than on automobile insurance, it is hard to make the case that it is difficult for these consumers to afford automobile insurance."

That comment drew the ire of CFA, prompting the group's Director of Insurance J. Robert Hunter to respond, "NAMIC has slandered a large majority of low-income Americans by implying that they spent more on cigarettes and alcohol than on auto insurance when in fact they spent nothing at all on these two products. Many households spend nothing on these products and this abuse of statistics reveals the underlying disrespect that at many auto insurers have for low-income drivers."  

Regarding FIO's request for information on affordability among minorities, NAMIC's  Vice President of Public Policy Robert Detlefsen notes insurers do not have information to separate minority consumers from the general population. 

"Insurers do not ask about the race or ethnicity of insureds or applicants for insurance," he says, adding that to do so would be "ill-advised and misleading to consumers" and in violation of state laws barring insurers from collecting information on race or ethnicity. "Safe, low-risk drivers come in all races, ethnicities, and income levels—as do high-risk drivers." 

Other groups weigh in 

In its letter, the Property Casualty Insurers Association of America argues competition already provides access to affordable auto insurance. "There is a plethora of insurers competing in every community," PCI says, noting that in 2012, almost 9 out of 10 states had at least 100 insurance carriers offering personal-auto coverage. "Each state has a healthy competitive auto insurance market5 for the benefit of households who are given a wide array of insurers, prices and products from which to select," PCI says.

The Insurance Information Institute says its studies indicate auto-insurance expenditures consume only 2% of income even for the poorest 20% of Americans, and that auto-insurance expenditures for the poorest 40% of Americans declined by 14% from 2008 to 2012.

It also says the cost of many other essential items is growing much more rapidly than auto insurance, and that inflation-adjusted average expenditures on auto insurance in the United States fell by an estimated 21% between 2003 and 2014 across all policyholders.

Moreover, the I.I.I. says, "Proportionately fewer lower income Americans polled in 2014 considered auto insurance to be a 'significant burden' compared with the same poll conducted in 2004."

The National Association of Insurance Commissioners says in its comment letter it has undertaken comprehensive studies dealing with this issue, and that state regulators work "to ensure that premiums are not excessive, inadequate, or unfairly discriminatory, and that insurance companies remain solvent and are able to pay policyholder claims."

However, in analyzing a huge amount of data compiled to deal with the issue, the NAIC says its "researchers were unable to draw definitive conclusions about the causes of these market conditions and the data could not prove conclusively that unfair discrimination exists."

The NAIC adds its studies have "shown that concepts of affordability and availability are somewhat subjective and vary depending on a number of factors like financial resources, historical norms and experience, supply and demand, and expectations for the scope of coverage, among others."

Providing perspective on the issue the FIO appears to be addressing, Vehicles For Change. a non-profit based in Baltimore that refurbishes donated cars and awards them to low-income families in Maryland, Virginia and Washington, D.C., says in its comment letter the cost of auto insurance is a barrier to car ownership for many families. 

It says in several states, auto-insurance providers are allowed to base car insurance rates on factors such as income and neighborhood. "In these instances, low-income families living in impoverished neighborhoods typically pay more for car insurance than wealthier residents with the same driving record," and that the cost of auto insurance is an excellent example of the "high cost of being poor."