Dave Snyder, vice president and associate general counsel for the American Insurance Association, questioned members of the Market Regulation and Consumer Affairs Committee at the NAIC's spring meeting on March 5 on whether a consumer representative had been allowed to make a closed-door presentation to commissioners on access to auto insurance for low-income drivers during a recent regulator retreat.
"Was the author of the report able to make a closed-door presentation without a chance for the industry to rebut the findings of the report?" Snyder asked. "Because I am familiar with the report, and many of the things in it are wrong."
Snyder's questions about how the NAIC conducts what he called "closed-door meetings" come at a sensitive time for the organization. Last week, U.S. Rep. Ed Royce, R-Calif., called on the NAIC to explain what kind of organization it is and what role it intends to play in the new regulatory landscape under the Dodd-Frank Act. Royce's letter specifically asked whether the NAIC believes it is subject to open-meeting laws.
Kentucky Commissioner Sharon Clark, who chairs the Market Regulation and Consumer Affairs Committee, told Snyder consumer groups as well as industry representatives had been invited to the retreat. "We will ensure that there will be ample opportunity to comment going forward," Clark said.
The report in question, "Lower-Income Households and the Auto Insurance Marketplace: Challenges and Opportunities," was authored by Stephen Brobeck and J. Robert Hunter of the Consumer Federation of America. It found low-income drivers may pay higher auto insurance premiums but receive less coverage in return than wealthier drivers.
"In general, LMI [low to moderate income] car owners are disadvantaged by rate classification systems used by insurers. They pay higher premiums because insurers use rating factors, such as residence, occupation, education, and credit rating, which are often correlated with risk. But insurers often have not adequately demonstrated to regulators that these correlations exist or that they actually reflect risk and are not surrogates for income," the report said.
Partly because of that report, the NAIC formed a joint working group made up of members of the Property and Casualty Insurance and Market Regulation and Consumer Affairs committees to review issues related to low-income households and the auto insurance market.
"Auto insurance is without a doubt one of the best markets for any product in the United States, in terms of competition, choice and price," Snyder said in an interview after the session. "The NAIC's resources ought to be focused on what's broken and not what's working well."
Snyder added that AIA intends to participate in the comment process before the new joint working group and will make recommendations for areas where it sees room for improvement.
"We plan to put on the table a number of ways we can make a good market even better," Snyder said. "That includes repealing all prior approval statutes for rate review."
Bernie Birnbaum of the Center for Economic Justice, who serves as a NAIC consumer representative, also addressed the regulators and said while the insurance industry cannot ask about income directly when writing policies, there are a number of rating factors that "have a clear correlation to income." He said,"We think it does seem timely for the NAIC to look at these issues and to take a more detailed look at the industry."
Now that the NAIC is looking at auto insurance practices more closely, it could reignite the perennial debate over the use of credit-based insurance scores in setting rates. Last year, the Massachusetts Association of Insurance Agents led an effort to get a ban on credit scoring on the state's electoral ballot for this year's election. The ballot question would prohibit the use of credit scores, occupation and education in setting auto insurance rates.
MAIA contends that auto premiums should be based as much as possible on consumers' driving records and years of experience behind the wheel.
Industry representatives have argued that credit scoring is blind to such things as race or income and has a demonstrated history of indicating risk.