Auto Insurance

Consumer Groups Call on State Insurance Regulators to Examine and Address Auto Insurance Affordability

Groups Criticize Insurers for Refusing to Provide Relevant Data, Tell Insurance Commissioners to Assert Authority to Protect Consumers

Washington, DC– Consumer groups called on state insurance commissioners to protect consumers by asserting reasonable regulatory authority to collect the data needed to meaningfully examine and address auto insurance affordability.  In a letter sent to the National Association of Insurance Commissioners (NAIC) Tuesday, Consumers Union, Consumer Federation of American, and the Center for Economic Justice, decried a flawed process used by the NAIC that resulted in insurance companies dictating the data they would provide and, consequently, dictating the outcome of a critical study of how insurers’ arbitrary pricing is placing deep financial burdens on consumers required by state laws to purchase auto insurance.

In addition to asking the NAIC to revisit the decision to forego an objective study, the groups asked state insurance regulators to examine why statistical agents appointed or licensed by regulators to act as the regulator’s agent for data collection refused to provide regulators with the data that regulators have required insurers to report.  The consumer groups asked the state insurance regulators to replace the current statistical agents, who have failed to put regulators as a top priority, with the NAIC as the statistical agent – just as the NAIC had replaced a private statistical agent with the NAIC as a statistical agent for life insurance, annuities and long-term care as part of the principle-based reserving effort.

Over the last five years, as the Federal Insurance Office has examined the issue of auto insurance affordability and availability at the direction of Congress, state insurance commissioners – the state-level officials responsible for monitoring auto insurance markets – have sat on the sidelines without taking action. Insurers, for their part, have obstructed any attempt to hold them accountable for arbitrary and discriminatory pricing practices, according to the consumer groups.  Finally, in late 2016, the states – through the NAIC Auto Insurance Working Group – decided to take action and started developing a list of data needed from insurers to examine the problems.

As the insurance regulators were poised to adopt the data request at their August National Meeting, the statistical agents – the organizations appointed by regulators to collect data for regulators from the regulated insurers – offered an ultimatum:  take the data the insurers are willing to give you – not the data you want or need – or get nothing.  Through a flawed process with virtually no public review, the regulators adopted the last-minute industry demand instead of a much stronger data collection and analysis plan that had been developed by regulators and debated in public hearings over several months.

“The insurance commissioners adopted a data collection/affordability analysis proposal from industry that was radically different from a regulator-developed proposal that had been exposed for several months,” the groups wrote.  “The industry proposal was first posted on August 2, 2017, just four days before the Auto WG adopted it – after giving non-industry stakeholders four minutes to comment.  The flawed process resulted in a flawed outcome and raises troubling questions about the role and authority of statistical agents.”

The groups also wrote, “This is an industry study designed to affirm industry talking points.  The NAIC should not be legitimizing an industry-controlled study as something meeting regulator needs or being overseen by regulators when neither is the case.”

The full letter is available here.

While a majority of insurance commissioners bowed to the industry demands, the consumer groups note that regulators from California, Connecticut, Missouri, and Pennsylvania did not approve the industry approach.

Auto Insurance Affordability and Availability – A Long-Standing Issue of Concern for Consumers and Policymakers

At issue is a long-standing effort, initiated by the NAIC in August 2012, to better understand and make recommendations regarding the unaffordability of state-mandated auto insurance, particularly for lower-income Americans. With approximately $40 billion spent on auto insurance by lower-income Americans each year and state laws requiring such insurance that can result in hefty fines, loss of a driver’s license and even jail time for driving without insurance, the high price of coverage for working families is a critical concern in many states.  Through over a dozen studies, CFA has documented the arbitrary pricing of insurers – based not on actual driving risk factors, but on a variety of socio-economic factors – like education, occupation, credit score, marital status and more – that penalize low- and moderate-income good drivers.  The CFA studies can be found here.

The groups also noted that the Federal Insurance Office (FIO) began collecting and publishing data on auto insurance affordability in 2016, despite this being an area that should be well researched by state commissioners.  If the NAIC and state commissioners continue to prove unwilling to stand up to insurance company lobbying, the FIO should be encouraged to increase its activity around auto insurance affordability, according to the groups.

Flawed Data Useless for Meaningful Study of Auto Affordability

Some of the flaws in the NAIC-adopted industry approach include:

  • The data will be hand-picked by the industry;
  • data will be incomplete with the missing data not disclosed;
  • there will be no unique insurance company data to allow study of redlining practices in ZIP Codes; and
  • an inability to know precisely what average premiums mean due to undisclosed information on amounts of insurance purchased and the fact that the stat agents will massage and “smooth” the data in unknown and untrustworthy ways.

Statistical Agents’ Conflicts of Interests – Serving Insurers Instead of Regulators

The groups wrote that the statistical agents who refused to provide regulators — the regulators for whom the statistical agents are supposed to be collecting data – to provide the individual insurer data they have already collected – have irreconcilable conflicts of interest.  The groups noted the crucial fact that the statistical agents depend on industry for all or most of the revenue and, in fact, are closely tied to the industry.  Of the four agents, one is a subsidiary of an insurance industry trade association and two are managed by boards comprised of insurance companies.  :

“We have no confidence that [one statistical agent] ISS will provide accurate data if it shows redlining given that ISS is an arm of the trade association that fought against insurer accountability for their pricing practices for decades. Or that [another statistical agent] ISO, which is dependent on industry money, will put forth data documenting consumer stakeholder concerns, should the data so indicate. Despite the massive conflicts of interest of the statistical agents, regulators and non-industry stakeholders have no ability to verify the accuracy or completeness of the data provided by the conflicted statistical agents,” the groups wrote.

Consumer Groups Await NAIC Response

The consumer groups now await the NAIC’s response to their requests to revisit the decision on relying on data hand-picked by insurers and to replace the conflicted private statistical agents with the NAIC as the data collection statistical agent for insurance regulators.

The Consumer Federation of America is a national organization of more than 250 nonprofit consumer groups that was founded in 1968 to advance the consumer interest through research, advocacy, and education.

The Center for Economic Justice is a non-profit organization that works to increase the availability, affordability and accessibility of insurance, credit, utilities, and other economic goods and services for low income and minority consumers.