What Price Insurance For Low-Income Drivers?

Although each state appoints its own Insurance Commissioner with jurisdiction limited to that state, the Commissioners have long recognized the need to coordinate their activities. It would be significantly unfair if there were major differences in the scope and cost of insurance between states. Just imagine a state line passing down the middle of an exurb. On one side, insurance companies offer generous coverage, superior service and all at modest rates. On the other, the insurance companies have a reputation for limited coverage, hostility when it comes to handling claims and high premium rates. Since the law prohibits people from buying insurance cover across state lines, the accident of where customers live would doom them to a good or bad insurance experience. Hence, there's a National Association of Insurance Commissioners (NAIC) where all the Commissioners meet to exchange ideas and, where possible, agree consistent policies. This effort is supported by the Center for Insurance Policy Research and a number of joint working groups on the different types of insurance.

Not surprisingly, the NAIC and its various working groups are viewed with some degree of hostility by the insurance industry. The insurers prefer to be able to pick off the Commissioners state by state behind closed doors. Once the Commissioners begin to exchange information, it limits the power of the insurers to lobby. This has prompted a number of attacks on the Association. Most recently, the Republican party challenged the NAIC to explain its status under the Dodd-Frank Act as reformed. In particular, it was asked whether it accepted the rule that all its meetings should be open-door. This is very important to the lobbyists. If those representing consumers are allowed to make presentations without the insurers being allowed to rebut what might be damaging, the Commissioners might decide to move into a more proactive role to police insurers for the benefit of consumers.
As an example, let's look at a recent report issued by the Consumer Affair Committee. It adopted work done by the Consumer Federation of America alleging low-income drivers were being hit by higher premium rates for coverage less generous than offered to more affluent drivers. The supposed reasons for this discrimination were the risk factors used by most insurers, namely: ZIP code, jobs, educational attainments and credit rating. This is not the first time it's been alleged the low- and medium-income drivers are disadvantaged. We all know the ZIP-code lottery on premium rates and the suggestion this produces a result that not only discriminates on the basis of income, but also on the basis of race given that many areas with the worst ratings are predominantly Latino or African American.

When it comes to car insurance rates, there's no doubt there's a case to be answered by the insurance industry. The question for the NAIC was whether the industry was prevented from making its case at this particular meeting. The question of credit-rating is hot right now with the issue getting on to the 2012 electoral ballot in Massachusetts. Consumer groups are more actively pushing policies to force the insurers to focus on the individual driver's safety record. It's going to be interesting to see how industry representatives defend the current car insurance rates at the next public meeting of the NAIC.


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