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Next up: the Affordable Car Act? (more updates)

Next up: the Affordable Car Act? (more updates)

Last updated on: July 2, 2014 at 11:38 pm by Jane the Actuary

Next up: the Affordable Car Act? (more updates) 2014-07-02T23:38:00-06:00 Jane the Actuary

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(originally written April 11th)

This from today’s Tribune:

On Thursday, the [Federal Insurance Office in the U.S. Treasury Department] — which is headed by Michael McRaith, the former head of Illinois’ insurance department — announced it was seeking comments and information about the affordability of car insurance and ways to determine whether minority communities have enough access to it.

Not much more detail than that, but this is astonishing. Car insurance is a consumer product with a great deal of competition, with market niches for service-conscious and price-conscious consumers, including insurers who specialize exclusively in minimum legally-required coverage. There are insurance agents all over the place, and the ability to pick up the phone and buy a policy. There’s an established system of high-risk policies for drivers with a record of accidents/tickets. The product is highly regulated to ensure that insurers have sufficient reserves, but it’s also easy for a consumer to comparison-shop.

Nonetheless, unnamed “consumer groups say it has become pricier for lower-income people and minorities,” and the Office says, cryptically, “the definition of the affordability of personal auto insurance remains unclear.”

Where does this lead? Will insurers be required to apply a community rating to car insurance, jacking up the premiums of responsible drivers? Open insurance agencies in poor neighborhoods (even if they conduct their business online or by phone)? Or do we need a system of subsidies to help the poor afford car insurance, since, according to the article, about 15% of motorists ignore the mandatory insurance requirement and are car-un-insured?

Hey — what about a single-payer system? Get into a wreck, get your repair costs covered by the government!

UPDATE: Here‘s the actual text of the announcement. Key points:

The Dodd-Frank Wall Street Reform and Consumer Protection Act provides the Federal Insurance Office with a number of authorities including monitoring the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income persons have access to affordable insurance products regarding all lines of insurance, except health insurance.
. . .
II. General Solicitation for Comments: The FIO hereby solicits comments, including supporting and illustrative information in support of such comments where appropriate and available, regarding:

A reasonable and meaningful definition of affordability of personal auto insurance;

The appropriate metrics to use in order to monitor the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income persons have access to affordable personal auto insurance; and

The data source(s) FIO should use to monitor the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income persons have access to affordable auto insurance.

“All lines of insurance” — does that mean that life insurance is up next, or the “affordability” of homeowner’s insurance in high-crime high-arson inner cities?

And what happens if auto insurance is deemed “unaffordable”? How likely is it that this agency is going to stop at measuring affordability, rather than creating yet more progams to make auto insurance more “affordable”?

SECOND UPDATE:

Now I’ve found the impetus behind this comment-solicitation, a report, dating to 2012, by the Consumer Federation of America charging that car insurance is unfairly-unaffordable for the poor. They have some legitimate concerns, claiming that insurers charge more for minimum-liability coverage than standard-liability coverage — which may indicate that people who seek out minimum-liability coverage are higher risks, or just that they figure that minimum-liability-coverage buyers aren’t careful comparison-shoppers. And apparently, if your auto lender purchases your car insurance for you, it’s massively overpriced (but I don’t know if the consumer has the option to buy the coverage on their own or not). They also say, which I can believe, that low-income people are treated unfairly in the claims process — though I don’t know to what degree it’s initial unfair treatment and to what extent it’s not knowing when and how to push back.

But they complain about insurers using “location of residence, occupation, education, and credit rating” in their underwriting, which seems legitimate to me as predictors of accidents. They complain that there aren’t enough insurance agencies in low-income areas, which doesn’t seem credible in these days of online and phone transactions — I’ve never met with an insurance agent in person in my life. And they complain that a factor which would serve to reduce premiums for the poor — the lower number of miles they drive, on average — isn’t being taken into account, although until recently there was no way to reflect this except self-reporting (now Progressive, at least, advertises an in-car tracking device to determine this and charge accordingly).

Their solutions are state-level solutions: lowering required minimum coverage (because, they say, the poor carry this, and everyone else has uninsured/underinsured motorist coverage anyway, so no worries); having state insurance commisioners research rate fairness (citing the issue of higher premiums for minimum coverage, but presumably resulting in the state forbidding the inclusion of certain factors in underwriting); and creating a state-sponsored car insurance program for the poor (apparently California does this) or, the big one: “a strong case could be made, on the basis of simple fairness, for some subsidization of state-required insurance.”

This is all based on the executive summary. But the complaints aren’t that dissimilar from the complaints about health insurance, and the solutions similar, too.

MORE UPDATES:

So now it’s May 6, and we finally got around to the price-shopping that we’d been meaning to do for quite a while. Our homeowner’s and our auto insurance will both drop significantly. I’m not entirely sure how much of this is due to a certain “re-setting” of rates because the new guys are competing for our business, and how much is due to more sophisticated analysis of the actuarial data at the new insurer — both in terms of our driving record and the risk factors of our neighborhood, as well as our own credit ratings. But it certainly does seem as if this is the sort of situation in which “social justice”-oriented bureaucrats could decide that, for the good of people with low credit ratings, they’ll step in and prevent insurers from using credit rating in their underwriting.

ANOTHER UPDATE (July 2nd):

We’ve now got our Allstate “Drivewise” devices installed, and they track our driving with the promise of up to a 30% discount if we drive less than 12,000 miles per year and have “good behavior” (no speeding and nminimal “hard braking events” — though their algorithm for determining “hard braking” seems to generate overly-many events if you’re driving at low speeds to begin with, and stopping at stop signs rather than traffic lights). It’s actually interesting to go online and see, “how long did that drive today actually take?” But I also read recently that Allstate relies most heavily on credit score in determining premiums, of all the major insurers, which goes a long way toward explaining the major, major drop in our car insurance rates from our former provider.

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