By: ABIA Outside Counsel Chrys D. Lemon and Adam D. Maarec, McIntyre & Lemon, PLLC
FIO Seeks Information on Auto Insurance Affordability and Availability
The Dodd-Frank Wall Street Reform and Consumer Financial Protection Act created the Federal Insurance Office (FIO). Among its many responsibilities, the FIO is required to monitor the extent to which traditionally underserved communities and consumers, minorities and low- and moderate-income people have access to affordable insurance products. In fulfilling this obligation, the FIO recently issued a notice and request for information on the affordability and accessibility of auto insurance.
What is “affordable” auto insurance?
Last year, the Federal Advisory Committee on Insurance (FACI) suggested that “affordability means that the cost of [personal auto insurance] is a reasonable percentage of a consumer’s income.” However, the FIO found this to be a “difficult and subjective” definition of affordability. In the alternative, the FIO offered two potential instances where auto insurance could be deemed affordable:
1) Where insurance premium payments “do not prohibit individuals and/or families from purchasing other required necessities”; or
2) Where insurance is actually purchased by individuals and / or families.
The FIO seeks comment on “a reasonable and meaningful definition of affordability of personal auto insurance.” It is important that the definition be correct because, while the definition of affordability in this case is limited to auto insurance, the end-result could be a definition that can also be used to adequately assess the affordability of other types of property and casualty insurance, such as homeowners insurance.
Metrics to measure access to and affordability of auto insurance
The FIO does not clearly define what measures would constitute evidence of access to auto insurance. However, the FIO notes that certain metrics have been used by studies in the past to measure both the availability and affordability of insurance, including:
1) Market share of the top ten writers of coverage;
2) Market share of the residual market;
3) Average premiums;
4) Loss ratios; and
5) An affordability index, based on the average auto insurance premium as a percentage of medial household income.
The FIO is seeking comment on the appropriate metrics and data sources to use when determining if underserved communities and consumers, minorities, and low- and moderate-income persons have access to affordable auto insurance.
Why is the FIO focusing on auto insurance?
The FIO is focusing on auto insurance largely because of its prevalence: almost every state requires consumers to have auto insurance to own a vehicle. However, a significant percentage of motorists, roughly 14 percent, are uninsured. With respect to affordability and accessibility, the FIO also notes that owning an automobile, and thus being required to purchase auto insurance, correlates well with employment and economic well-being.
Comments are due on or before June 9, 2014.
Federal Register Notice & Request for Information
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This article is provided for informational purposes only by ABIA’s outside counsel McIntyre & Lemon, PLLC and is not intended to be legal guidance. Readers should consult with legal counsel before taking any action on issues addressed in this article.