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Consumer Advocates Call on Federal Insurance Office to Research Auto Rate Impact on Low-Income Customers

Source: A.M. Best

Posted on 05 Dec 2012 by Neilson

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Auto prices on low-income customersConsumer advocates upset with the progress made by a National Association of Insurance Commissioners' panel in examining the impact of automobile insurance prices on low- and moderate-income people have threatened to ask the Federal Insurance Office to conduct its own research.

Advocates Birny Birnbaum, executive director of the Center for Economic Justice, and Robert Hunter, director of insurance at the Consumer Federation of America, pressed the Joint Auto Insurance Study Group, which is in the midst of drafting a new work plan as it seeks to address the impact of auto insurance prices on low-income customers, on the issue. Hunter cited three CFA studies earlier this year, the first of which examined the impact on auto insurance affordability from the rating classifications used by insurers.

"Unfortunately, we found not just high rates, but evidence of unfair and discriminatory treatment of working families that has resulted in the denial of economic opportunities," Hunter said. The report, which shows low-income families pay higher premiums for less coverage, prompted the creation of the study group to examine the issues.

Hunter expressed disappointment in what the working group had done in terms of data collection to address the issues. He expected the NAIC panel to gather data on low- and moderate-income drivers, including statistics on what rates they pay, the portion that drive without insurance and an analysis of factors used to see if they have a discriminatory impact. Hunter said he would call on the Federal Insurance Office to use its authority to collect the data necessary to examine issues involving insurance availability and affordability.

Hunter said a CFA study released in June, using public information from State Farm, Allstate, Progressive and Geico, looked at prices for required coverage. It found that good drivers in moderate-income areas in 15 cities are being quoted high auto insurance rates for minimum liability coverage required. The study also said price quotes to the same person ranged dramatically. "If rates reflect risk and cost, why do their rates differ so radically?" Hunter asked.

But David Snyder, vice president of international policy for the Property Casualty Insurers Association of America, said the claims were inaccurate and "a fictional representation of a market that is working exceptionally well."

Snyder told the panel that auto markets in their states are very competitive. "You have a significant number of companies competing to do business throughout your markets. Auto insurance premiums have been stable or lower, and have performed much better than the Consumer Price Index in recent years. When you look at complaint systems, the number of complaints is infinitesimal when compared with the number of auto insurance policies in a given year." He said risk remains the factor upon which rates are based.

Bob Detlefsen, vice president of public policy at the National Association of Mutual Insurance Companies, criticized the CFA research as too limited, covering only four companies in 15 cities. "I'd be very hesitant to draw a broad conclusion about what low-income people pay for liability based on a survey of four companies," he said.

The panel has a risk classification survey to gather information for the panel's research, but Birnbaum said it likely would underestimate the impact on low- and moderate-income families. Birnbaum said it is "an ineffective tool for simply getting insurers to identify the risk classifications they use, the magnitude of rate impact for each risk classification and the correlation of these factors with income and race."

Birnbaum said he was upset over the lack of information provided by the panel to examine auto insurance affordability for low- and moderate-income customers, but said the group's goals would not have meaningfully examined the issue regardless. He said most states use measures of statewide competition and profitability that do not address the issue.

For its part, the study group decided to consider addressing methodological issues concerning data collection and analysis for the risk classification survey and to consider an alternative data collection plan focused on market performance factors, rating factors, tiers and other information to supplement the risk classification survey.