Cigarettes, Alcohol and Auto Insurance: Groups Weigh in on

Affordability
Allstate Insurance Co. believes one of the "most straightforward" ways of reducing the cost of auto
insurance is to lower the amount of coverage that is required.
Allstate's comments were made in a letter to the Federal Insurance Office, which has initiated a
study of the affordability and availability of auto insurance. In its letter, signed by Edward T. Collins,
vice president and assistant general counsel, Allstate suggests revising legal requirements that force
low-income individuals to purchase coverage they do not need, which could lower costs and make
insurance more affordable.
"Affordability could also be enhanced by attacking some of the factors that drive up costs, including
fraud and abuse and litigation costs," Collins says in the letter.
Allstate was one of 20 groups and individuals responding to the FIO request.
Those commenting include insurance companies, property and casualty trade groups, consumer
groups, actuaries, state regulators and the Insurance Information Institute.
The comment period closed Monday. The FIO initiative was partly driven by concerns that the data
collected by the National Association of Insurance Commissioners may not be adequate and that
"other data sources will likely be needed," according to a regulatory bulletin from an industry law
firm.
A comment letter from consumer groups led by the Consumer Federation of America touched on
that very issue.
The letter urged the FIO to collect data from insurance companies in order to assess the
affordability of auto insurance for low- and moderate-income Americans and those living in
historically underserved communities.
The data collected should be precise enough to indicate the actual premiums insurers charge
drivers, rather than average rates that obscure the wide range of premiums that companies charge
to good drivers with different socio-economic characteristics and the factors that tend to drive up
prices for low- and moderate-income and minority drivers, the consumer-group letter says.
Moreover, the letter says, FIO should work with regulators and, as necessary, use its own authority
under the provisions of the Dodd-Frank Act to collect data directly from insurance companies in
order to ensure the most accurate information is available.
Cigarettes and alcohol? NAMIC, CFA spar over comments
The National Association of Mutual Insurance Companies says in its letter that the federal
government should avoid imposing any regulations on insurers to impose "affordability." The letter
says, "If consumers can choose to spend more of their income on alcohol and tobacco, and also more
on television sets and cable service, than on automobile insurance, it is hard to make the case that it
is difficult for these consumers to afford automobile insurance."
That comment drew the ire of CFA, prompting the group's Director of Insurance J. Robert Hunter to
respond, "NAMIC has slandered a large majority of low-income Americans by implying that they
spent more on cigarettes and alcohol than on auto insurance when in fact they spent nothing at all
on these two products. Many households spend nothing on these products and this abuse of
statistics reveals the underlying disrespect that at many auto insurers have for low-income drivers."

Regarding FIO's request for information on affordability among minorities, NAMIC's Vice
President of Public Policy Robert Detlefsen notes insurers do not have information to separate
minority consumers from the general population.
"Insurers do not ask about the race or ethnicity of insureds or applicants for insurance," he says,
adding that to do so would be "ill-advised and misleading to consumers" and in violation of state laws
barring insurers from collecting information on race or ethnicity. "Safe, low-risk drivers come in all
races, ethnicities, and income levels--as do high-risk drivers."
Other groups weigh in
In its letter, the Property Casualty Insurers Association of America argues competition already
provides access to affordable auto insurance. "There is a plethora of insurers competing in every
community," PCI says, noting that in 2012, almost 9 out of 10 states had at least 100 insurance
carriers offering personal-auto coverage. "Each state has a healthy competitive auto insurance
market5 for the benefit of households who are given a wide array of insurers, prices and products
from which to select," PCI says.
The Insurance Information Institute says its studies indicate auto-insurance expenditures consume
only 2% of income even for the poorest 20% of Americans, and that auto-insurance expenditures for
the poorest 40% of Americans declined by 14% from 2008 to 2012.
It also says the cost of many other essential items is growing much more rapidly than auto
insurance, and that inflation-adjusted average expenditures on auto insurance in the United States
fell by an estimated 21% between 2003 and 2014 across all policyholders.
Moreover, the I.I.I. says, "Proportionately fewer lower income Americans polled in 2014 considered
auto insurance to be a 'significant burden' compared with the same poll conducted in 2004."
The National Association of Insurance Commissioners says in its comment letter it has undertaken
comprehensive studies dealing with this issue, and that state regulators work "to ensure that
premiums are not excessive, inadequate, or unfairly discriminatory, and that insurance companies
remain solvent and are able to pay policyholder claims."
However, in analyzing a huge amount of data compiled to deal with the issue, the NAIC says its
"researchers were unable to draw definitive conclusions about the causes of these market conditions
and the data could not prove conclusively that unfair discrimination exists."
The NAIC adds its studies have "shown that concepts of affordability and availability are somewhat
subjective and vary depending on a number of factors like financial resources, historical norms and
experience, supply and demand, and expectations for the scope of coverage, among others."
Providing perspective on the issue the FIO appears to be addressing, Vehicles For Change. a non-
profit based in Baltimore that refurbishes donated cars and awards them to low-income families in
Maryland, Virginia and Washington, D.C., says in its comment letter the cost of auto insurance is a
barrier to car ownership for many families.
It says in several states, auto-insurance providers are allowed to base car insurance rates on factors
such as income and neighborhood. "In these instances, low-income families living in impoverished
neighborhoods typically pay more for car insurance than wealthier residents with the same driving
record," and that the cost of auto insurance is an excellent example of the "high cost of being poor."