When Congress created the Federal Insurance Office in 2010 as part of the Dodd-Frank financial reform legislation, it asked the new agency to monitor whether traditionally underserved consumers, communities, minorities, andlow- and moderate-income persons have access to affordable insurance products in all lines except health insurance.
FIO published a notice last April inviting public comments on the matter, with specific reference to Auto insurance. FIO noted that when it asked its advisory council to define insurance affordability, it could only suggest that "affordability means that the cost is a reasonable percentage of a consumer's income." This begs the question of what constitutes a "reasonable" percentage.
FIO asked commenters for their own definitions of "affordable," and to suggest metrics and data that the agency should use to monitor the extent to which this population has access to affordable Auto insurance.
"Affordability" is subjective, and cannot be defined to everyone's satisfaction. The National Association of Mutual Insurance Cos. suggests that the FIO focus on how much low- and moderate-income households spend on Auto insurance relative to what they spend on other essential and non-essential goods and services, in order to understand how Auto insurance expenditures fit within the broader spending habits of consumers.
The Consumer Expenditure Survey, published by the U.S. Bureau of Labor Statistics, contains detailed information regarding consumer expenditures on a vast array of goods and services, including Auto insurance. In 2012, households in the lowest and second lowest quintiles spent 2.0% and 2.3%, respectively, on Auto insurance. As part of their household budgets, both quintiles spent 2.4% of their income on audio and visual equipment and services. The lowest income quintile spent $511 on Auto insurance and $530 on A/V products.
These figures are a reliable indicator of how consumers actually spend money, and suggest that the amount low-income consumers pay for Auto insurance is reasonable.
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