Auto Insurance Unaffordable for 18.6 Million: Federal Report

By Brandon Ross

Auto insurance is not affordable for 18.6 million Americans, a federal study found.

The study, released Jan. 20, is the first in what will be an annual look into the affordability of auto insurance, conducted by the Treasury Department’s Federal Insurance Office (FIO). The study broke down affordability by ZIP code, comparing the median average household income against auto insurance prices—if the premiums cost more than 2 percent of the household’s yearly income, then the product was deemed unaffordable.

“The Study thereby provides baseline measurements that policymakers, regulators, and consumers can use for future national, objective, quantifiable comparisons of changes in auto insurance affordability over time,” the study says.

Further data calls are imminent for large auto insurers. The nation’s five largest auto insurers are: Allstate Corp., Farmers Insurance Group, the Government Employees Insurance Co. (GEICO), Progressive Insurance Corp. and State Farm Mutual Automobile Insurance Co.

“[I]n 2017, [the FIO] will collect more data from larger auto insurers,” according to the study. “Specifically, the additional data will be used to supplement and update this Study; refine the calculation of the Affordability Index; and allow for evaluation of trends and changes in personal auto insurance affordability for Affected Persons.”

The 18.6 million Americans who reside in ZIP codes where auto insurance was deemed unaffordable primarily had low incomes and/or were minorities, according to the FIO report.

Consumers Praise; Industry Critiques

“In every state but New Hampshire, American drivers are required to buy auto insurance, but there had never been a comprehensive study as to whether or not insurance prices are even affordable for lower- and moderate-income Americans until now,” J. Robert Hunter, director of insurance for Consumer Federation of America (CFA) and a former insurance commissioner of Texas and federal insurance administrator, said in a Jan. 23 statement.

Industry groups responded with a mix of caution and criticism.

“We welcome FIO’s initial comments on auto insurance affordability, and appreciate their recognition of the need to further examine the issue before coming to any conclusions,” Lisa Brown, assistant general counsel & director, compliance resources for the American Insurance Association, told Bloomberg BNA in a Jan 23 e-mail. “AIA looks forward to reviewing and responding to a more extensive report on the issue in the coming months once FIO has done further analysis based on more detailed data.”

Auto insurance is affordable overall, another group said.

“The FIO report showed overwhelmingly that auto insurance is affordable in a majority of the nation, even utilizing FIO’s strict definition,” Robert Gordon, senior vice president, policy, development and research for the Property Casualty Insurers Association of America, told Bloomberg BNA in a Jan. 23 e-mail. “PCI has emphasized that any calculations of auto affordability should factor in the rising costs due to the increased accident frequency and severity, which were not adequately included in the study.”

More critically, the National Association of Mutual Insurance Companies (NAMIC) issued a statement attacking the report’s methodologies as unreliable and subjective.

“This report is disappointing, but hardly surprising. Having made use of an inherently unreliable ZIP-code-based approach to determine whether minority and low- and moderate-income consumers can afford to purchase auto insurance based on a subjective ‘affordability index’ of its own invention, the FIO’s findings offer little in the way of useful information,” Robert Detlefsen, vice president of public policy for NAMIC, said in a statement e-mailed to the press.

To contact the reporter on this story: Brandon Ross in Washington at bRoss@bna.com

To contact the editor responsible for this story: Paul Hendrie at pHendrie@bna.com

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