Best’s News & Research Service - September 30, 2014 10:34 AM (EDT)
Industry Groups Question CFA Study on Insurance Pricing for Low- and Moderate-Income Consumers
WASHINGTON //BestWire// - Insurance groups are criticizing a Consumer Federation of America report seeking Federal Insurance Office review of auto insurance affordability for low- and moderate-income consumers. CFA is asking the National Association of Insurance Commissioners to help improve data collection, while calling on states to adopt a low-cost premium for those groups of drivers.
Residents living in 215 low- and moderate-income ZIP codes in large metropolitan areas in Florida, Michigan, Minnesota, Wisconsin, Maryland, Connecticut and Louisiana are faced with hard-to-afford auto insurance premiums that are greater than $500 annually, the CFA report said.
The report follows other CFA work that argues that in many cities, most auto insurance premiums exceed $500, often exceed $1,000 and sometimes exceed $2,000, levels that would render mandatory auto insurance unaffordable for most low- and moderate-income drivers. The CFA purchased data on auto premiums and examined quoted premiums in 8,222 zip codes located in the nation's 50 largest urban regions.
In all 215 ZIP codes that cover Miami, Detroit, Minneapolis-St. Paul; Tampa-St. Petersburg; Baltimore; Orlando, Fla.; Jacksonville, Fla.; Hartford, Conn. and New Orleans as well as their suburbs, the data show that no insurer was charging less than $500 annually for auto insurance in those areas to good drivers living there. Only 5% of the drivers in the New York-Northern New Jersey-Long Island area were charged less than $500 annually. However, drivers in all ZIP codes in 25 cities listed, including Chicago, Dallas, Washington, Atlanta, Boston, San Diego, Pittsburgh and Cleveland, were receiving minimum premiums of less than $500.
Representatives from the CFA and other consumer groups have debated over auto insurance affordability for years in the NAIC auto insurance study group. Now the CFA wants the NAIC to develop a model data call to aid state regulators in tracking the insurance costs of low- and moderate-income drivers. "Such a model would require insurers to provide premiums charged to drivers with certain socioeconomic characteristics typical of [low- and moderate-income] drivers," the report said. Currently, the NAIC is developing a data call to determine what rating factors companies use when setting premiums, but it would not solicit data on premiums customers pay.
The Federal Insurance Office has been attempting to conduct a study on auto insurance affordability and was cautioned by the auto industry to create rules that would cause auto insurers to impose affordability on consumers. Auto insurance representatives have argued that insurance is largely affordable for segments of the population regardless of income and race (Best's News Service, June 9, 2014).
Insurance groups were skeptical of the report's findings.
Dave Snyder, vice president at the Property Casualty Insurers Association of America, said income is not a factor that has been considered in auto insurance ratemaking. "The best way to reduce costs is to get at the underlying cost drivers, and we don't believe pricing the products to reflect over than what a product does is a sound way to go," he told Best's News Service.
Snyder said the CFA report does not support additional activity at either the state or the federal level. Holding down rates because of factors such as income would make the auto insurance market unfavorable for everyone, he said.
Bob Detlefsen, vice president, public policy at the National Association of Mutual Insurance Companies, issued a statement questioning the report. "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," he said. "In competitive markets, the price of goods and services is largely driven by the costs firms incur when they provide these things."
The American Insurance Association said in a statement the CFA report is too selective. "A wide range of state-approved factors are utilized when determining auto premiums," said AIA spokesman Will Rijksen. "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. 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."
(By Thomas Harman, associate editor, BestWeek: Tom.Harman@ambest.com)