U.S. Reports Auto Insurance Unaffordable for Millions; Insurers Call Report ‘Ill-Conceived and Unnecessary’

By | January 24, 2017

Nearly 19 million Americans live in areas where auto insurance is unaffordable including a large number in the New York region, according to a first-of-its kind study by the U.S. Treasury Department.

The study, conducted by the department’s Federal Insurance Office (FIO), found that car insurance is generally unaffordable in 845 U.S. areas, as defined by postal codes, that are typically home to minorities and people with low-to-moderate incomes.

More than 40 percent of Americans living in areas with unaffordable insurance reside in New York, New Jersey and Connecticut.

States with the greatest number of residents facing unaffordable insurance include New York (5.2 million), Florida (2.8 million), New Jersey (2.3 million), Michigan (1.7 million), Pennsylvania (1.1 million) and Texas (873,000).

Congress established the FIO in 2010 as part of the Dodd-Frank financial reform law, tasking the office with monitoring whether underserved communities have access to affordable non-health insurance products such as life and property insurance.

The study, published on Friday, was the FIO’s first to target auto insurance affordability. It noted that Americans who cannot afford coverage are at a disadvantage, because drivers tend to have more economic opportunities including employment. Nearly all states require drivers to buy some type of auto insurance.

“The government can’t force people to buy products in the private marketplace but pay no attention to whether the prices are sufficiently affordable that people can comply with these laws,” said J. Robert Hunter, director of insurance for the Consumer Federation of America, in a statement.

“Unaffordable” insurance, as defined by FIO, costs more than 2 percent of the median household income within a zip code.

The study analyzed population and insurance premium data to create an index that consumers and policymakers can use to examine affordability over time. The FIO plans to collect more data and refine its results in future studies, it said.

(Reporting by Suzanne Barlyn; Editing by Lauren Tara LaCapra and Cynthia Osterman)

 Insurers React, Criticize FIO Report

Some insurers have criticized the FIO’s approach to affordability in the past and this report gave the National Association of Mutual Insurers (NAMIC) another opportunity to voice its concerns. Robert Detlefsen, the group’s vice president of public policy, issued the following statement:

“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. Indeed, the FIO acknowledges as much, admitting that its findings should not be used for interstate analysis and are ‘not appropriate for measuring the affordability of an auto insurance premium paid’ by individual consumers.

“Nor is it surprising that the ZIP codes where average premiums were deemed by the FIO to be unaffordable tend to be located in states such as Florida, Michigan, and New York, which are widely known to have systemic regulatory and legal problems that lead to higher insurance costs for all those states’ consumers, regardless of their ethnicity and income level. The report briefly mentions a few of these problems in a half-page section titled ‘Factors Affecting Affordability’ but makes no attempt to analyze their effect on auto insurance premiums.

“All in all, this report constitutes yet another example of an unnecessary and ill-conceived FIO endeavor that should cause policymakers to question the purpose and utility of the office going forward.”

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