WASHINGTON—Personal lines auto insurers do not offer a basic insurance policy to safe drivers living in more than one-third of the nation's low-income areas, the Consumer Federation of America said Monday in a new report.
"Our research raises important questions as to whether state-mandated auto insurance is priced fairly and is affordable for many lower-income Americans," said Tom Feltner, CFA's director of financial services and the principal author of the report. "Drivers need a car to get to work or school. High insurance premiums act to deny these Americans economic opportunity and also help explain why so many lower income Americans drive without insurance," he added.
The CFA identified a policy costing less than $500 annually as the ideal insurers should work toward, and said a 2013 survey showed that 76 percent of Americans believe that such a policy should be made available.
In 24 of the 50 urban regions, there was at least one lower-income ZIP code where annual premiums exceeded $500 from every major insurer, CFA said. In nine of these 50 areas – Miami/Ft. Lauderdale, Detroit, Minneapolis/St. Paul, Tampa/St. Petersburg, Baltimore, Orlando, Jacksonville, Hartford, and New Orleans – prices exceeded $500 in all lower-income ZIP codes.
The American Insurance Association responded by saying that the personal lines auto insurance market is "highly competitive," and that there are "legitimate reasons" for the current premium structure.
The Property Casualty Insurers Association of America responded by pointing out that a whole host of components are involved in establishing personal lines premium prices, and that the cost of personal lines auto insurance "has not gone up nearly as much" as other costs faced by consumers.
At the same time, the National Association of Mutual Insurance Companies was more aggressive.
A spokesman said that, "In competitive markets, the price of goods and services is largely driven by the costs firms incur when they provide these things." In the highly competitive auto insurance market, NAMIC said, "prices are heavily dependent on loss costs, a factor that is not even mentioned in the CFA report."
NAMIC also noted that the CFA's statistical analysis of prices finds that in nearly three-fourths of the low-to-moderate income zip codes it examined, the average annual price of minimum liability insurance for its hypothetical driver was less than $500.
CFA asked in the report that federal and state regulators should "thoroughly investigate this issue" and to work to ensure that mandated auto insurance can be afforded by lower-income Americans with good driving records.
"CFA commends the Federal Insurance Office for initiating an investigation of auto insurance affordability by lower-income Americans," said J. Robert Hunter, CFA's director of insurance and former Texas insurance commissioner.
"We are hopeful that the FIO will gain access to data on prices quoted and charged by insurers to help determine insurance affordability," he said.
The CFA report also urged the National Association of Insurance Commissioners (NAIC) to conduct a comprehensive review of auto insurance access and affordability.
The CFA report said that a California insurance program has made available for several years liability coverage to lower-income good drivers for $226 to $338 per year, depending on county of residence. By law, this program is required to charge premiums that cover claims paid and is not subsidized by taxpayers or other drivers, CFA officials said.
The finding that 76 percent of Americans believe basic auto insurance should cost less than $500 comes from a September 2013 ORC International survey of a representative sample of 1,000 adult Americans contacted by cell and landline phone, CFA said.
In its response, the American Insurance Association said that a wide range of state-approved factors are utilized when determining auto premiums. "The report seemingly ignores the fact that there are legitimate reasons for premiums, including the type of vehicle, its risks, and costs of repair among other things," said Willem Rijksen, an AIA spokesman.
He said the auto insurance market is highly competitive, "providing consumers with a wide-variety of choices when it comes to selecting the right coverage for their individual needs."
Robert Passmore, senior director, personal lines policy for the Property Casualty Insurers Association of America (PCI), said that PCI "understands the desire that everyone has to pay less for goods and services."
However, he said, there are a number of actions that would be targeted at bringing down the cost drivers for insurance. Passmore cited lawsuit reform, avoiding mandatory insurance level increases, low cost auto programs and more highway safety and antifraud measures. "These actions would benefit all consumers," he said.
Robert Detlefsen, NAMIC vice president of public policy, contended that "it is hard to take seriously" a survey that asks consumers to determine a "fair" price for insurance coverage, "any more than one would take seriously a survey that asked people to determine the 'fair' price of a gallon of gasoline or the 'fair' price of an airline ticket for a roundtrip between Dallas and Cleveland."
An interesting question, not addressed by CFA, is why prices were higher in the zip codes where costs were higher than $500, Detlefsen said.
"The major loss costs that determine auto liability insurance prices are those associated with vehicle repair and medical treatment for bodily injuries. Research has shown that these costs vary widely across states and within states. Policymakers could work to lower the price of auto insurance for all consumers by considering measures that would reduce insurers' loss costs."
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