FIO Urged to Adopt Strong Auto Insurance Affordability Standard

Responding to a request for information from the Federal Insurance Office (FIO), more than 50 consumer, civil rights, and community groups, including CFA, joined in urging the FIO to establish a strong affordability standard for low- and moderate-income Americans. “In more than one out of every three low-wealth communities in the largest metro regions, good drivers are unable to access an affordable policy from any of the five major insurers.” said CFA Director of Financial Services Tom Feltner.

Consumer groups around the country and, most recently, Consumer Reports magazine, have reported on the high cost of auto insurance for many Americans and the burden caused by such an expensive product that is also required in every state except New Hampshire, according to a CFA press statement. “Unaffordable auto insurance leaves many Americans in the predicament of either not driving, which dramatically restricts their economic opportunities, or driving without insurance, which not only is illegal but puts them and other drivers at risk,” the groups wrote in their letter to the FIO.

The groups were responding to a request for comments issued in July by FIO on its proposal to create an affordability index that deemed auto insurance affordable if it cost less than two percent of the household income of low- and moderate-income drivers and other underserved Americans.  Consumer, civil rights, and community groups that jointly submitted a letter to FIO, offered support for the two percent index but cautioned that the way FIO determined both the income levels and the price of insurance would determine the validity and utility of the index.

As the groups explained, premiums in any given area, even when limited only to those offered to good drivers, can vary widely around a range of factors including annual miles driven, occupation, credit score, level of education, marital status, homeownership, history of prior insurance coverage and others. Further, because premiums for good drivers of lower socio-economic status tend to be higher than those offered to high wealth drivers, using an overall average premium would falsely lower the market’s average price by including premiums that are not actually available to lower-income drivers due to the various factors considered by insurers.

In their letter, the groups provided guidelines that FIO should use to determine the average income of “Affected Persons,” including low- and moderate-income drivers, minorities and those in underserved communities. The groups also offered suggested parameters for the consumer profiles that should be used by FIO to determine the actual cost of basic auto insurance faced by low- and moderate-income drivers and others in underserved communities.

Consumers Want More Fuel Efficient Trucks

Testifying at a public hearing on increasing national fuel-efficiency standards for medium- and heavy-duty trucks, CFA Public Affairs Director Jack Gillis presented the results of two national surveys demonstrating that consumers understand that the cost of fuel inefficient trucks is passed on to them and that they would like to see standards requiring increased fuel efficiency.

The average American household pays $1,100 a year to fuel the nation’s trucking fleet, according to CFA research. “From a household energy expense perspective, the amount consumers pay for truck fuel is almost as much as they spend for home electricity and about half of what a typical household pays for gasoline,” Gillis said.

The results of the surveys bolster calls to implement proposed fuel efficiency standards, which would save an estimated $200 per American household, for a total savings of $170 billion nationwide. Aside from the environmental impact of increased fuel efficiency, such savings would likely stimulate further economic growth as consumers have more money to spend on consumer goods, Gillis said.

The details of these potential consumer benefits are explained in detail in CFA’s report Paying the Freight.

CFA Calls on NAIC to Support Price Optimization Ban

With ten state insurance commissions having come out against the data mining pricing practice known as price optimization, CFA sent a letter earlier this month to the National Association of Insurance Commissioners (NAIC) task force currently working on a White Paper on the practice urging the organization to recommend that states prohibit its use.

“The NAIC should clearly and straightforwardly present only one recommendation to the states: ban this illegal practice,” said CFA Director of Insurance J. Robert Hunter in a press statement.  “Any other recommendations would not only undermine the credibility of the White Paper but fly in the face of the action already taken by ten of the NAIC’s member states.”

Price Optimization is a relatively new premium setting technique that analyzes customers’ shopping habits to determine how much insurance companies might be able to increase premiums for individual customers.  The draft NAIC white paper aims to explain price optimization and provide guidance to state regulators on how best to address the use of these techniques by insurance companies.

As CFA explained in its letter, however, the practice is inconsistent with state laws that prohibit unfairly discriminatory rates.  “Price optimization is a method that uses non-risk-related information to systematically move insurance premiums away from their cost-based level. No one denies this. Systematically moving prices around to reflect non-risk information such as price elasticity of demand per se causes rates to be unfairly discriminatory and illegal in virtually every state.  It is our view that the only conclusion that can be drawn from a review of price optimization techniques is that price optimization is illegal and must be prohibited,” CFA wrote.

CFA Warns of Risks from Off-Highway Vehicles

Heading into the Labor Day weekend, CFA issued a warning regarding the risks related to off-highway vehicles (OHV) particularly when used on road.  The groups documented 357 OHV fatalities in 2015 through the end of August, with that number expected to increase as additional information becomes available.

“In addition to staying off of roads, there are three additional critical safe riding practices to follow when riding OHVs,” said Rachel Weintraub, CFA’s Legislative Director and General Counsel, in a press release. “Never permit children younger than 16 years old to operate an adult-size OHV or any OHV that is too large and too powerful for them, always wear a helmet and other protective gear when riding an OHV, and never allow more people on an OHV than it was designed to carry.”

Of the total fatalities, 335 could be identified as on or off road incidents and 193 of those incidents, or 58 percent, took place on roads — a surface that OHVs are not designed for and on which they cannot be safely operated.  “Though there has been a decade long trend toward states, counties and municipalities opening up roads to OHV use, that does not mean it is a safe behavior—which these numbers prove,” said CFA Senior Policy Advocate Michael Best.

New Reference Book Profiles Recent History of Consumer Activism

A new encyclopedia just published by Greenwood Press, Watchdogs and Whistleblowers: A Reference Guide to Consumer Activism, provides an authoritative guide to consumer advocacy past and present.  Edited by two of the most knowledgeable authorities on the consumer movement – CFA Executive Director Stephen Brobeck and Robert N. Mayer, Professor of Family and Consumer Studies at the University of Utah – the 569-page encyclopedia contains over 140 contributions from 100 authors, many of whom are well-known advocates themselves.

“Watchdogs and Whistleblowers represents a unique source of information about dozens of consumer organizations, hundreds of consumer advocates, and activism on dozens of consumer issues,” Brobeck said in a press statement.  The reference book also includes essays on U.S. and international consumer activism, a timeline of U.S. activism, a select bibliography, and a foreword by Jim Guest, past President of Consumer Reports.

An excerpt of the book is available here.