Study on the Affordability of Personal Automobile Insurance

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

JA NUARY 2017

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Study on the Affordability of Personal Automobile Insurance (January 2017)

Table of Contents

Glossary .......................................................................................................................................... ii

I. Introduction and Summary of Findings .............................................................................. 1

II. Why Personal Auto Insurance?........................................................................................... 3

III. Auto Insurance and State Requirements – the Basics......................................................... 4

IV. Auto Insurance Availability and Uninsured Drivers .......................................................... 6

Figure 1: Number of Personal Auto Insurers in Each State.................................................... 6

Figure 2: Percentage of Uninsured Drivers by State .............................................................. 7

V. Factors Affecting Affordability .......................................................................................... 7

VI. Calculating the Affordability Index .................................................................................... 8

A. Who Are Affected Persons?................................................................................................ 8

Figure 3: Concentration of Affected Persons as Percentage of U.S. Population .................... 9

B. Defining Affordability ........................................................................................................ 9

C. How to Calculate the Affordability Index ........................................................................ 10

D. Data Sources and Limitations ........................................................................................... 10

VII. The Affordability of Personal Auto Insurance for Affected Persons:

Findings and Observations................................................................................................ 11

A. Findings and Summary of Analysis .................................................................................. 11

Figure 4: AP ZIP Codes and Affordability Index Values Above Two Percent by State ...... 12

Figure 5: Financial Responsibility Limits, Based on Median Family Income ..................... 13

Figure 6: Financial Responsibility Limits, Based on Minority Concentration ..................... 14

B. Illustrations ....................................................................................................................... 14

1. California .................................................................................................................... 14

Figure 7: California ZIP Code Analysis ............................................................................... 15

2. Florida......................................................................................................................... 15

Figure 8: Florida ZIP Code Analysis .................................................................................... 16

3. Illinois ......................................................................................................................... 16

Figure 9: Illinois ZIP Code Analysis .................................................................................... 17

4. New York ................................................................................................................... 17

Figure 10: New York ZIP Code Analysis ............................................................................. 18

VIII. Next Steps ......................................................................................................................... 19

IX. Conclusion ........................................................................................................................ 19

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Study on the Affordability of Personal Automobile Insurance (January 2017)

Glossary

Affected Persons

Affordability Index

AP ZIP Codes

BI

..........

Traditionally underserved communities and

consumers, minorities, and low- and moderate-

income persons

Personal automobile insurance affordability index

as described in this Study

ZIP Codes in which Affected Persons are the

majority

Bodily injury liability insurance coverage

FIO

..........

Federal Insurance Office

FR Limits

..........

Financial Responsibility Limits, i.e., state

mandatory minimum requirements for personal

auto insurance

LMI

..........

Low- and moderate- income

MFI

..........

Median family income

MSA

..........

Metropolitan Statistical Area

NAIC

..........

National Association of Insurance Commissioners

PD

..........

Property damage liability insurance coverage

PIP

Study

..........

Medical payments and personal injury protection

insurance coverage

This Study on the Affordability of Personal

Automobile Insurance

UM

..........

Uninsured Motorist insurance coverage

UIM

..........

Underinsured Motorist insurance coverage

ZIP Code

.........

U.S. Postal Service ZIP Code

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

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Study on the Affordability of Personal Automobile Insurance (January 2017)

I. Introduction and Summary of Findings

When establishing the Federal Insurance Office (FIO) within the U.S. Department of the

Treasury, Congress tasked FIO with, among other things, monitoring the extent to which

traditionally underserved communities and consumers, minorities, and low- and moderate-

income (LMI) persons have access to affordable insurance products for all lines of insurance

(except health insurance).

1

Congress recognized that minorities and LMI persons and

communities could be at a higher risk from financial downturns than other groups within the

United States, and designed the Dodd-Frank Wall Street Reform and Consumer Protection Act of

2010 to ensure federal monitoring of consumers’ access to affordable insurance products.

2

With

this awareness, and in recognition of the importance of affordable, accessible insurance products

to individuals and families in the United States, FIO previously has written about access to

insurance and other consumer protection concerns.

3

This Report constitutes FIO’s first insurance affordability study, focusing on automobile

insurance for individual consumers. This first annual Study on the Affordability of Personal

Automobile Insurance (Study) provides an objective, quantifiable, national perspective on auto

insurance affordability for traditionally underserved communities and consumers, minorities, and

LMI persons (collectively, Affected Persons).

Section II explains why affordable auto insurance is critically important to consumers, and

describes the public notice and comment process used to help determine the Study’s definitions

and metrics. After outlining some basic insurance terms and concepts, Section III summarizes

state personal auto insurance requirements since, of course, the business of insurance in the

United States – including auto insurance – is regulated primarily at the state level.

4

Section IV

discusses auto insurance availability, as well as how the numbers of uninsured drivers can affect

auto insurance affordability. Section V discusses other factors that can affect affordability.

Section VI explains how the Affordability Index is calculated; discusses Affected Persons and

affordability; outlines how to calculate the Affordability Index; and describes the underlying data

and its limitations. Section VII provides the Study’s findings, including a state-by-state

summary of results and illustrative state examples. Section VIII concludes with additional

observations and next steps.

1

See 31 U.S.C. § 313(c)(1)(B).

2

See Press Release: Waters Wins Big for Consumers, Homeowners, Minorities and Shareholders in Wall Street

Reform and Consumer Protection Legislation (June 30, 2010), available at https://waters.house.gov/media-

center/press-releases/waters-wins-big-consumers-homeowners-minorities-and-shareholders-wall . See also

156 CONG. REC. H5242 (June 30, 2010) (“The Federal Insurance Office, we will be asking them to gather

information about the ability of minorities and low income persons to access affordable insurance products.”)

(statement of Maxine Waters).

3

These FIO reports are available at https://www.treasury.gov/initiatives/fio/reports-and-notices and include: How to

Modernize and Improve the System of Insurance Regulation in the United States (December 2013); Annual Report

on the Insurance Industry (September 2014); Report Providing an Assessment of the Current State of the Market for

Natural Catastrophe Insurance in the United States (September 2015); Annual Report on the Insurance Industry

(September 2015), and Report on Protection of Insurance Consumers and Access to Insurance (November 2016)

(Consumer Report).

4

See, e.g., the McCarran-Ferguson Act, 15 U.S.C. § 1011; the Gramm-Leach-Bliley Act, 15 U.S.C. § 6711.

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

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Study on the Affordability of Personal Automobile Insurance (January 2017)

In brief, this Study calculates and reports the results of an Affordability Index which, following

extensive consultation and analysis, FIO has defined as the ratio of the average annual written

personal automobile liability premium in the voluntary market to the median household income

(based on U.S. Census Bureau data) for U.S. Postal Service ZIP Codes in which Affected

Persons are 50 percent or more of the population (AP ZIP Codes). For the purposes of this

analysis, personal auto insurance is presumed unaffordable within an AP ZIP Code if its

Affordability Index is above two percent.

5

As described in more detail in Section VII, the

United States has 9,172 AP ZIP Codes in which Affected Persons are the majority population, or

approximately 28 percent of all of the ZIP Codes nationwide. Auto insurance has Affordability

Index values above two percent in 845 AP ZIP Codes nationwide; those 845 AP ZIP Codes have

an aggregate population of over 18.6 million. Affordability Index results for each AP ZIP Code

are available at www.treasury.gov/initiatives/fio/reports-and-notices.

Using the information provided in this Study, consumers and policymakers will be able to assess

the affordability of personal auto insurance for Affected Persons within each state and the

District of Columbia, at the ZIP Code level. Given the wide variations among states, any

interstate comparisons should be made with great caution: the Affordability Index allows for

comparison of ZIP Codes within the same state, but should not be considered for interstate

analysis. Also, the Study is limited to auto insurance affordability for Affected Persons.

Importantly, however, even for Affected Persons the Affordability Index is not intended to

provide guidance for individual insurance budgeting or affordability for specific individuals.

Due to the range of unique personal characteristic and variance among state laws and

regulations, the Affordability Index is not appropriate for measuring the affordability of an auto

insurance premium paid by any one person. Rather, the Affordability Index is designed for the

purpose of gaining a better understanding of auto insurance affordability for Affected Persons,

collectively, at the ZIP Code level.

This Study is based on premium and related data that is publicly available and/or that was

voluntarily provided by states and statistical agents.

6

The underlying data, therefore, does not

include all U.S. auto insurance policies. More data will be available for the next study, when all

large auto insurers will be asked to voluntarily produce premium data through the appropriate

statistical agent.

7

As more data is analyzed and year-to-year trends become visible, annual study

results are likely to provide more insights into industry trends and developments.

5

Monitoring Availability and Affordability of Auto Insurance, 81 Fed. Reg. 45,372 (July 13, 2016) (July 2016

Notice). See also Monitoring Availability and Affordability of Auto Insurance, 79 Fed. Reg. 19,969 (Apr. 10, 2014)

(April 2014 Notice), and Monitoring Availability and Affordability of Auto Insurance, 80 Fed. Reg. 38,277 (Jul. 2,

2015) (July 2015 Notice).

6

With some state-specific exceptions, property and casualty insurers generally are required by state law to send

premium and claims/loss data to statistical agents, who then compile the data for state insurance departments; the

states, in turn, use the reported information to ensure that insurance rates meet statutory standards and to monitor the

insurance market. See, e.g., Independent Statistical Service, Statistical reporting made simple, available at

http://www.iss-statistical.net/subscriber-home/home

; National Independent Statistical Service, About Statistical

Reporting, available at https://www.niss-stat.org/HTML/AboutStatisticalReporting.aspx; Verisk Analytics,

Statistical Service, available at http://www.verisk.com/capabilities/data-and-statistical-services/statistical-service-

reporting-insurance-data-to-iso.html.

7

See Proposed Collection; Comment Request, 81 Fed. Reg. 45,381 (July 13, 2016) (Collection Request).

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

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Study on the Affordability of Personal Automobile Insurance (January 2017)

II. Why Personal Auto Insurance?

This Study focuses on personal auto insurance because affordable auto insurance can promote

financial security for individuals and families. Auto ownership is associated with greater

opportunity for economic well-being, such as better access to employment opportunities.

8

For

example, one researcher found that “transit only enables [low-income] commuters to reach less

than one-third of metro-wide jobs within 90 minutes while the automobile enables them to reach

all jobs in the 51 largest metropolitan areas within 60 minutes.”

9

Furthermore, nearly all states require a driver or owner of a motor vehicle to have automobile

liability insurance or financial security that may be satisfied by auto liability insurance while

operating a motor vehicle, or at the time of registering a motor vehicle.

10

(Section III provides

additional information about states’ auto insurance requirements). Commentators have observed

that “[u]naffordable 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.”

11

Finally, insurance stakeholders often disagree about whether auto insurance has become more or

less affordable for Affected Persons over time.

12

In light of the above factors, FIO published a request for information regarding: (1) a reasonable

and meaningful definition of affordability for personal auto insurance; (2) appropriate metrics

and data for monitoring the extent to which Affected Persons have access to affordable auto

insurance; and (3) sources to use for data monitoring auto insurance affordability for Affected

Persons.

13

After reviewing the responses to the initial information request, FIO published for

comment a proposed framework for measuring the affordability of personal auto insurance for

Affected Persons.

14

After carefully considering all of the comments received, and in conjunction

with additional research and consultation, FIO published a notice advising of the adoption of a

8

See Clifford Winston, “On the Performance of the U.S. Transportation System: Caution Ahead,” Journal of

Economic Literature, Vol. 51, No. 3, at 805 (2013), available at https://www.aeaweb.org/articles?id=10.1257/

jel.51.3.773.

9

Id.

10

See, e.g., Insurance Information Institute, Compulsory Auto/ Uninsured Motorists (July 2016), available at

http://www.iii.org/issue-update/compulsory-auto-uninsured-motorists.

11

Consumer Federation of America et al. Comment, at 1 (August 31, 2015), available at

http://www.regulations.gov/#!documentDetail;D=TREAS-DO-2015-0005-0014.

12

See, e.g., Insurance Research Council, Trends Indicate Auto Insurance is Becoming More Affordable for All

Income Groups (Aug. 25, 2015), available at http://www.insurance-

research.org/sites/default/files/downloads/Trends%20in%20Auto%20Insurance%20Affordability%20NR_FINAL.p

df, and compare with Stephen Brobeck and J. Robert Hunter, “No Increase in Affordability of Auto Insurance for

Low- and Moderate-Income Households,” Consumer Federation of America (Sept. 2, 2015), available at

http://www.consumerfed.org/pdfs/150921_CES_affordability_brobeckhunter.pdf. See also July 2016 Notice, supra

note 5, 81 Fed. Reg. at 45,373.

13

April 2014 Notice, supra note 5, 79 Fed. Reg. at 19,969-19,970.

14

July 2015 Notice, supra note 5, 80 Fed. Reg. at 38,277 et seq.

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Study on the Affordability of Personal Automobile Insurance (January 2017)

methodology to monitor the affordability of personal auto insurance for Affected Persons,

15

which is summarized in Section VI.

III. Auto Insurance and State Requirements – the Basics

Auto insurance provides protection against loss arising from the operation, maintenance, or use

of automobiles covered by the insurance, for the potential benefit of insured car owners,

passengers, drivers, and others.

16

Personal automobile insurance covers private passenger vehicles (as distinct from commercial

vehicles). Private passenger autos generally are four-wheel motor vehicles (other than trucks)

that are either owned or leased under contract for six months or more, including cars and

SUVs.

17

Personal auto insurance can consist of one or more types of coverage to pay specified

types of loss, subject to the insurance policy’s terms, conditions and exclusions, including the

following:

• Personal Liability insurance covers bodily injury (BI) costs associated with injuries and

death, and property damage (PD) such as damage to structures or another car caused by

the insured owner or other driver of the insured car.

• Uninsured Motorist (UM) coverage reimburses the insured car owner when an auto

accident is caused by an uninsured motorist, or for hit-and-run accidents.

• Underinsured Motorist (UIM) coverage pays an insured car owner’s costs when another

driver has insufficient insurance to pay all accident costs.

• Collision insurance coverage reimburses the insured car owner for damages to the car

that results from a collision with another vehicle or other object (such as a tree or

guardrail) when the owner is at fault for the accident.

• Comprehensive coverage insures against theft as well as damage caused to an insured car

by an incident other than a collision such as flood, vandalism, hail, falling trees, or other

hazards.

15

July 2016 Notice, supra note 5, 81 Fed. Reg. at 45,372 et seq.

16

See, e.g., Florida Division of Consumer Services, Personal Automobile Insurance Overview, available at

http://www.myfloridacfo.com/Division/Consumers/UnderstandingCoverage/PersonalAutoInsuranceOverview.htm.

17

See, e.g., Rosalie L. Donlon & Christine G. Barlow, “Personal auto policies: 5 questions agents should ask

buyers,” PropertyCasualty360 (Nov. 30, 2016), available at

http://www.propertycasualty360.com/2016/11/30/personal-auto-policies-5-questions-agents-should-

a?eNL=583f2aab160ba0a472aeecc5&utm_source=PC360_Daily&utm_medium=EMC-

Email_editorial&utm_campaign=11302016&page_all=1.

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• Medical Payments or Personal Injury Protection (PIP) provides reimbursement for the

insured driver’s and passengers’ medical expenses from injuries caused by an accident,

regardless of who is at fault.

18

Except for New Hampshire, all states require consumers to maintain personal liability

automobile insurance as a condition for registering and driving a car. Currently 17 states also

have mandatory PIP requirements, and 20 states require UM and/or UIM coverage.

Comprehensive and collision insurance usually are optional. States’ minimum requirements for

personal liability coverage are generally known as financial responsibility limits (FR Limits).

FR Limits requirements vary considerably by state.

19

The personal auto insurance marketplace, broadly speaking, has three segments based on risk

profile categories: (1) the standard market, which consists of all drivers except those in the non-

standard market and the residual market; (2) the non-standard market, which usually includes

high risk drivers such as new drivers, drivers with moving violations, drivers with rare or

unusual cars, or drivers with more frequent incidences of insurance policy cancellation or non-

renewal; and (3) the residual market, which generally includes drivers with the highest risk of

submitting a claim. Generally, premiums are highest in the residual market, followed by the

non-standard market, and of course the lowest premiums are in the standard market.

20

Standard

and non-standard markets together comprise the “voluntary” market, as distinct from the residual

market.

21

The Affordability Index assesses personal liability auto insurance and personal injury protection

coverage, at FR Limits, in the voluntary market, for Affected Persons, as described in greater

detail in Section VI.

18

See, e.g., Insurance Information Institute, Auto Insurance Basics—Understanding Your Coverage, available at

http://www.iii.org/article/auto-insurance-basics-understanding-your-coverage.

19

See, e.g., Insurance Information Institute, Compulsory Auto/ Uninsured Motorists, supra note 10.

20

See, e.g., July 2015 Notice, supra note 5, 80 Fed. Reg. at 38,820 & fn. 38. Insurers do not have a universal

method for determining market placement: different insurers may offer the same driver standard and non-standard

market rates. See, e.g., July 2016 Notice, supra note 5, 81 Fed. Reg. at 45,373.

21

See July 2016 Notice, supra note 5, 81 Fed. Reg. at 45,377.

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Study on the Affordability of Personal Automobile Insurance (January 2017)

IV. Auto Insurance Availability and Uninsured Drivers

The personal auto insurance market generated $199.9 billion in total direct premiums in 2015,

representing about 38.4 percent of all property and casualty insurance net premiums.

22

Nearly

900 personal auto insurers conduct business in part or all of the United States.

23

No state has

fewer than 50 auto insurers, and 45 states have at least 100 insurers offering coverage for private

vehicles (see Figure 1).

24

Figure 1: Number of Personal Auto Insurers in Each State

50-100

100-125

125-150

150-175

175-200

200 250

Source: SNL Financial

Despite the existence of a competitive marketplace, nearly 30 million uninsured drivers drove on

U.S. roads in 2012.

25

The percentage of uninsured drivers in the total U.S. population generally

has declined over the last five years for which data is available.

26

Notably, lower-income drivers

are more likely to be uninsured, which could indicate a correlation with affordability.

27

Figure 2

shows the percentage of uninsured drivers by state as of 2012.

28

22

See SNL, P&C Industry: U.S. P&C Business Overview, available at

https://www.snl.com/web/client?auth=inherit#statIndustry/pcIndustry?KeyStatEntity=E61858CD-F1F9-42BD-

8848-8CB6B42ED2FE.

23

See SNL Financial. See also Property Casualty Insurers Association of America Comment, at 10 (August 13,

2015) (PCI Comment) (citations omitted), available at http://www.regulations.gov/#!documentDetail;D=TREAS-

DO-2015-0005-0006.

24

See SNL Financial. See also PCI Comment, supra note 23, at 10.

25

See Insurance Research Council, New Study Reveals a Declining Trend in the Percentage of Uninsured Motorists

(August 5, 2014), available at http://www.insurance-

research.org/sites/default/files/downloads/IRC%20UM_NewsRelease_1.pdf.

26

See id.

27

See Consumer Federation of America, Uninsured Drivers: A Societal Dilemma in Need of a Solution, at 5 (March

2013) (citing own analysis and collecting sources), available at

http://www.consumerfed.org/pdfs/140310_uninsureddriversasocialdilemma_cfa.pdf

.

28

Insurance Information Institute, Uninsured Motorists, available at http://www.iii.org/fact-statistic/uninsured-

motorists (citing Insurance Research Council). See also Cecile Holton, “How the States Rank on Uninsured

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

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Figure 2: Percentage of Uninsured Drivers by State

0-5%

5-10%

10-15%

15-20%

20-25%

25%+

Source: Insurance Information Institute

The reasons for the numbers of uninsured drivers – and the widely varying percentages by state –

are beyond the scope of this Study. However, Uninsured Motorist (UM) claims – i.e., claims

paid by an insurer even though the insured was not at fault – are one of the many factors that can

affect premium pricing and, thereby, affect the affordability of personal auto insurance.

Additional factors affecting affordability are discussed in Section V.

V. Factors Affecting Affordability

Numerous activities, trends, and pricing factors at both the macro (state/national) and micro

(individual consumer) levels may affect personal auto insurance affordability.

At the state and national levels, factors affecting the price of an auto insurance premium include:

state law and regulation such as required FR Limits and whether the state mandates PIP

coverage;

29

state programs which offer low-cost auto liability insurance or help low-income and

other drivers obtain more affordable auto insurance;

30

accidents involving uninsured drivers

which can contribute to higher premium costs for insured drivers;

31

health and safety measures

Drivers,” carinsurance.org, available at http://www.carinsurance.org/2011/04/how-the-50-states-rank-on-

uninsured-drivers_408.

29

See, e.g., Insurance Information Institute, No-Fault Auto Insurance in Florida: Trends, Challenges and Costs

(January 2011), available at http://www.insuringflorida.org/wp-content/uploads/2015/05/No-Fault-

Paper_0125111.pdf.

30

See e.g., California Dep’t of Insurance, California’s Low Cost Auto Insurance, available at

https://mylowcostauto.com/; State of New Jersey Dep’t of Banking & Insurance, Special Automobile Insurance

Policy (SAIP), available at http://www.state.nj.us/dobi/division_consumers/insurance/saip.htm; Haw. Rev. Stat. §

431:10C-407, available at http://law.justia.com/codes/hawaii/2010/division2/ title24/chapter431/431-10c-407/;

Michigan Dep’t of Insurance and Financial Services, Your Guide to Automobile Insurance, available at

https://www.michigan.gov/documents/difs/Auto_Insurance_ Guide_448003_7.pdf.

31

See, e.g., “Why Auto Insurance in Detroit is So Damn High, Explained,” Daily Detroit (Oct. 19, 2015), available

at http://www.dailydetroit.com/2015/10/19/why-car-insurance-detroit-so-high-explained/.

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such as highway safety initiatives, the increasing use of collision avoidance technology in motor

vehicles, and health care reform which can promote cost-savings and reduce insurance

premiums; medical utilization rates;

32

and the prevalence of crime such as auto theft and

insurance fraud.

33

For individual consumers, numerous additional pricing factors can affect affordability. Pricing

factors may include the amount of coverage purchased and premium bundling discounts, such as

discounts offered when purchasing auto and home insurance from the same insurer. In addition,

depending on the state, insurers typically consider numerous additional factors in determining

personal auto insurance premiums, including: driving record; age; gender; marital status;

education; occupation; type of car insured; and location of residence which may affect the

probability of accidents (often higher in more densely populated areas with more cars on the

road), as well as the likelihood of damage from natural hazards (such as when a region is prone

to hail or flooding).

34

Academics have highlighted how state insurance anti-discrimination laws

vary significantly, and that many states’ insurance laws do not explicitly restrict insurers’ ability

to discriminate on the basis of race, national origin or religion.

35

VI. Calculating the Affordability Index

A. Who Are Affected Persons?

Affected Persons are defined by LMI and majority-minority ZIP Codes which serve as proxies

for capturing both rural and urban traditionally underserved communities.

36

For the purpose of

calculating the Affordability Index, a ZIP Code is deemed “majority-minority” if the minority

population within that ZIP Code – including “Black American, Native American, Hispanic

American, or Asian American”

37

– exceeds 50 percent of the total population of that ZIP Code.

Similarly, a low-income ZIP Code has a median family income (MFI) less than 50 percent of the

32

See Insurance Research Council, Auto Insurance Affordability Problems Linked to Underlying Cost Drivers (June

21, 2016), available at http://www.insurance-research.org/sites/default/files/downloads/NRcostdrivers2016.pdf

(finding medical utilization rates above national norms in 8 of the 12 least affordable auto insurance systems).

33

See, e.g., Insurance Information Institute, Insurance Fraud (January 2016), available at http://www.iii.org/issue-

update/insurance-fraud; Insurance Research Council, Insurance Research Council Finds that Fraud and Buildup

Add Up to $7.7 Billion in Excess Payments for Auto Injury Claims (Feb. 3, 2015), available at

http://www.insurancefraud.org/downloads/ InsuranceResearchCouncil02-15.pdf. By some measures, auto insurance

fraud costs the average family $400-$700 in additional premiums every year. See, e.g., EMC Corp., Making Sense

of Today’s Insurance Market: Bringing Business and IT Together to Drive Growth, Boost Revenue, and Reduce

Costs, at 9 (March 2013), available at

https://www.emc.com/collateral/white-papers/making-sense-of-todays-

insurance-market-wp.pdf.

34

For more on insurance pricing and risk classification, see, e.g., FIO, Consumer Report, supra note 3.

35

See, e.g., Ronen Avraham, Kyle D. Logue, and Daniel Schwarcz, “Understanding Insurance Antidiscrimination

Laws,” 87 S. C

AL. L. REV. 195 (2013-2014); Ronen Avraham, Kyle D. Logue and Daniel Schwarcz, “Towards a

Universal Framework for Insurance Anti-Discrimination Laws,” 21 C

ONN. L.J. 1 (2014-2015).

36

For more on defining Affected Persons, see the July 2016 Notice, supra note 5, 81 Fed. Reg. at 45,377 et seq.

37

31 U.S.C. § 313(c)(1)(B) (incorporating by reference the definition established in 12 U.S.C. § 1811, note).

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

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median income for the Metropolitan Statistical Area (MSA) for that ZIP Code, while a moderate-

income ZIP Code has an MFI of at least 50 percent of the MSA median income but less than 80

percent of the MSA median income.

38

Figure 3 shows the concentration of Affected Persons

within each state.

Figure 3: Concentration of Affected Persons as Percentage of U.S. Population

0-10%

10-20%

20-30%

30-40%

40-50%

50%+

Source: U.S. Census Bureau, American Community Survey

B. Defining Affordability

The average U.S. household spends approximately two percent of its annual income on personal

automobile insurance,

39

a ratio critical to the definition of affordability as used in FIO’s

Affordability Index.

The Affordability Index was developed to provide a single number representing affordability

within a geographic area based on ZIP Codes, thereby simplifying the effort to compare

affordability. Specifically, the Affordability Index is a ratio defined as the average annual

written personal automobile liability premium in the voluntary market divided by the median

household income for ZIP Codes identified as being majority-minority or majority-LMI.

40

Personal auto liability insurance is presumed to be affordable within a particular ZIP Code if the

Affordability Index is equal to or less than the (approximate) national average of two percent.

41

38

See July 2015 Notice, supra note 5, 80 Fed. Reg. at 38,280; Federal Deposit Insurance Corp., Community

Reinvestment Act (CRA) Performance Ratings, available at https://www5.fdic.gov/crapes/peterms.asp; July 2016

Notice, supra note 5, 81 Fed. Reg. at 45,378 et seq.

39

Specifically, the Bureau of Labor Statistics’ Consumer Expenditure Survey found that, in 2013 and 2015,

consumers spent about 1.8 percent of average income (after taxes) on vehicle insurance. See Bureau of Labor

Statistics, Consumer Expenditure Survey, available at http://www.bls.gov/cex/

.

40

July 2016 Notice, supra note 5, 81 Fed. Reg. at 45,375.

41

Id.

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

9

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Study on the Affordability of Personal Automobile Insurance (January 2017)

Of course, national averages can mask wide variations. A recent report showed that the average

state premium for a full-coverage auto insurance policy varied from a low of $808 per year in

Maine to a high of $2,738 in Michigan.

42

Insurance premiums unsurprisingly span a wide range

of price points given the state-by-state variability in affordability factors (discussed in Section

V). For this reason, among others, the Affordability Index and its results are best used only for

intrastate comparisons, rather than to compare one state with another, and are not intended to

provide insight on the affordability (or not) for any individual consumer.

C. How to Calculate the Affordability Index

In essence, the Affordability Index measures personal auto insurance expenditures relative to

income. Specifically, the Affordability Index assesses personal liability auto insurance and

personal injury protection coverage, at FR Limits, in the voluntary market, for Affected Persons,

as compared to median household income.

Calculating the Affordability Index requires multiple steps and data sets. Data from the Census

Bureau, the Federal Financial Institutions Examination Council, and the U.S. Department of

Housing and Urban Development was used to identify the 9,172 ZIP Codes in which Affected

Persons are the majority population (AP ZIP Codes) (i.e., the majority-minority and the majority-

LMI ZIP Codes) and for which the Affordability Index would be calculated. Then, using the

available data, the average premium for policies at the FR Limits in the voluntary market in each

AP ZIP Code was calculated. Next, using Census Bureau data, the median household income in

each AP ZIP Code was identified. Finally, for each AP ZIP Code, the average annual written

personal automobile liability insurance premium in the voluntary market was divided by the

median household income.

43

D. Data Sources and Limitations

This is the first use of the FIO Affordability Index, and conclusions drawn from this study should

be limited because FIO was unable to analyze comprehensive premium data for all auto

insurance policies issued in the fifty states and the District of Columbia. Subject to

confidentiality protections and the use of aggregated data, the Study relied upon data with ZIP

Code level vehicle counts and premium data for most states for many (but not all) policies in the

voluntary market written at the applicable state FR Limits, with policy inception dates between

July 1, 2014 and June 30, 2015. Available premium data included BI and PD coverage, and PIP

coverage for states where it is mandatory, but excluded UM and UIM coverage. The California

Department of Insurance provided data (BI and PD basic limit premium and exposure data for

calendar year 2012 for the entire state), as did the Texas Department of Insurance (ZIP Code

level premium data for its top reporting groups for the policy year ending December 31, 2015).

However, because the California and Texas regulator data covered a different time period than

42

Mark Vallett, “Car insurance rates by state, 2016 edition,” insure.com (last updated Mar. 2, 2016), available at

http://www.insure.com/car-insurance/car-insurance-rates.html.

43

The Affordability Index components are discussed in more detail in the July 2016 Notice, supra note 5, 81 Fed.

Reg. 45,372.

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

10

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Study on the Affordability of Personal Automobile Insurance (January 2017)

the rest of the data, the tabulated results are premised only upon the premium data from 2014-

2015.

Developing a single number index to represent a topic as complicated as personal auto insurance

affordability is a challenging endeavor. Some of the challenges include: (1) ZIP Code level

premium data for every ZIP Code in the United States are unavailable; (2) using ZIP Codes

rather than census tracts

44

which generally better identify specific communities, but for which

the premium data is unavailable; (3) ZIP Codes with low populations have a greater possibility

of skewing results (which the Study addressed by omitting ZIP Codes with fewer than 100

residents); (4) ZIP Codes with low vehicle counts, which also have a greater possibility of

skewing results (which the Study addressed by excluding ZIP Codes with fewer than 20 reported

vehicles with insurance policies at the FR Limit); (5) atypical ZIP Codes, such as military bases,

transportation facilities, and others (which the Study addressed through vehicle-to-population

analysis); and (6) newly-created ZIP Codes, which could not be evaluated due to lack of detailed

demographic data.

45

VII. The Affordability of Personal Auto Insurance for Affected Persons:

Findings and Observations

A. Findings and Summary of Analysis

Subject to the definitions and data limitations described above, 9,172 ZIP Codes were identified

as AP ZIP Codes (i.e., majority LMI and/or majority-minority ZIP Codes), representing

approximately 28 percent of the 32,452 ZIP Codes analyzed nationwide.

All states have AP ZIP Codes, and most states have one or more AP ZIP Codes with an

Affordability Index above two percent. The cost of auto insurance exceeds the Affordability

Index in 845 AP ZIP Codes, with over 18.6 million residents (over 9 percent of all AP ZIP Codes

nationwide). Given varying state laws, insurance requirements, and insurance markets, these

results are best interpreted only on an intrastate basis. A detailed summary of the Study’s

findings and non-confidential data, listing each AP ZIP Code and whether the Affordability

Index is above or below two percent (or data was insufficient), is available at

www.treasury.gov/initiatives/fio/reports-and-notices.

Figure 4 provides an overview of the Affordability Index results for each state. The table first

shows the total number of ZIP Codes within each state. Then, for each state’s AP ZIP Codes, it

44

A “census tract” is an area, roughly equivalent to a neighborhood, which the Census Bureau uses for analyzing

population data. See U.S. Census Bureau, Geographic Terms and Concepts – Census Tract, available at

http://www.census.gov/geo/reference/gtc/gtc_ct.html

.

45

The Auto Insurance C/D Working Group of the National Association of Insurance Commissioners (NAIC) is

considering asking state insurance regulators to collect and examine more “granular” data on auto insurance

affordability and availability. See, e.g., NAIC, 2016 Fall National Meeting: Auto Insurance (C/D) Working Group

(for December 10, 2016), available at

http://naic.org/meetings1612/cmte_c_d_auto_insurance_wg_2016_fall_nm_materials.pdf?1480986907413

.

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

11

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Study on the Affordability of Personal Automobile Insurance (January 2017)

lists the number of AP ZIP Codes within that state, the percentage of the state’s ZIP Codes that

are AP ZIP Codes, the total population of AP ZIP Codes within the state, and the percentage of

the state’s population within the AP ZIP Codes. Finally, the table shows the total number and

percentage of the state’s AP ZIP Codes with an Affordability Index above two percent, the

state’s population within those AP ZIP Codes, and that population’s percentage of the total

number of Affected Persons within the state.

Figure 4: AP ZIP Codes and Affordability Index Values Above Two Percent by State

State

# All

ZIP

Codes

Total

#

AP ZIP Codes Generally

% State

ZIP

Codes

Total

Population

% State

Pop.

AP ZIP Codes – Affordability Index > 2%

Total

#

% State

AP ZIP

Codes

Total

Population

% State

Pop.

AK

238

160

67.2%

157,014

21.6%

0

0.0%

0

0.0%

AL

642

229

35.7%

1,478,597

30.7%

11

4.8%

52,273

3.5%

AR

591

170

28.8%

569,706

19.3%

7

4.1%

17,125

3.0%

AZ

405

166

41.0%

2,456,770

37.4%

13

7.8%

198,707

8.1%

CA

1,763

893

50.7%

24,915,144

65.5%

6

0.7%

98,417

0.4%

CO

525

123

23.4%

1,292,051

24.9%

0

0.0%

0

0.0%

CT

282

51

18.1%

1,049,902

29.2%

19

37.3%

434,518

41.4%

DC

53

12

22.6%

408,414

64.4%

3

25.0%

143,984

35.3%

DE

67

7

10.4%

146,590

16.0%

3

42.9%

82,333

56.2%

FL

983

323

32.9%

7,921,414

40.9%

95

29.4%

2,856,314

36.1%

GA

735

294

40.0%

4,518,269

45.6%

10

3.4%

188,235

4.2%

HI

94

81

86.2%

1,340,036

96.2%

0

0.0%

0

0.0%

IA

934

118

12.6%

393,351

12.8%

0

0.0%

0

0.0%

ID

278

54

19.4%

113,121

7.1%

1

1.9%

913

0.8%

IL

1,383

286

20.7%

4,226,070

32.8%

10

3.5%

78,455

1.9%

IN

775

142

18.3%

1,412,167

21.6%

4

2.8%

38,460

2.7%

KS

698

111

15.9%

536,093

18.6%

4

3.6%

32,417

6.0%

KY

768

231

30.1%

890,428

20.4%

99

42.9%

429,806

48.3%

LA

515

183

35.5%

1,539,121

33.5%

44

24.0%

604,509

39.3%

MA

537

94

17.5%

1,862,527

28.0%

0

0.0%

0

0.0%

MD

468

146

31.2%

2,701,458

45.9%

10

6.8%

334,269

12.4%

ME

432

55

12.7%

120,135

9.0%

0

0.0%

0

0.0%

MI

987

195

19.8%

2,369,870

24.0%

77

39.5%

1,706,039

72.0%

MN

885

137

15.5%

829,108

15.4%

5

3.6%

95,275

11.5%

MO

1,024

268

26.2%

1,512,925

25.1%

24

9.0%

349,448

23.1%

MS

423

203

48.0%

1,108,069

37.1%

4

2.0%

9,546

0.9%

MT

361

103

28.5%

93,051

9.2%

0

0.0%

0

0.0%

NC

808

277

34.3%

3,233,072

33.2%

0

0.0%

0

0.0%

ND

383

47

12.3%

60,908

8.7%

0

0.0%

0

0.0%

NE

581

90

15.5%

295,529

15.9%

3

3.3%

46,694

15.8%

NH

248

47

19.0%

261,362

19.8%

0

0.0%

0

0.0%

NJ

595

143

24.0%

3,438,632

38.7%

82

57.3%

2,309,120

67.2%

NM

368

228

62.0%

1,354,026

65.2%

5

2.2%

2,845

0.2%

NV

175

64

36.6%

1,395,364

50.5%

6

9.4%

223,268

16.0%

NY

1,794

403

22.5%

8,657,611

44.2%

115

28.5%

5,233,053

60.4%

OH

1,197

277

23.1%

2,650,639

22.9%

41

14.8%

503,008

19.0%

OK

648

166

25.6%

850,198

22.3%

4

2.4%

34,350

4.0%

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

12

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Study on the Affordability of Personal Automobile Insurance (January 2017)

State

# All

ZIP

Codes

AP ZIP Codes Generally

Total

#

% State

ZIP

Codes

Total

Population

% State

Pop.

AP ZIP Codes – Affordability Index > 2%

Total

#

% State

AP ZIP

Codes

Total

Population

% State

Pop.

OR

417

68

16.3%

537,993

13.8%

4

5.9%

76,739

14.3%

PA

1,798

354

19.7%

2,585,456

20.3%

35

9.9%

1,067,469

41.3%

RI

77

11

14.3%

274,741

26.1%

6

54.5%

171,402

62.4%

SC

424

192

45.3%

1,594,317

33.7%

7

3.6%

9,720

0.6%

SD

371

89

24.0%

105,274

12.6%

1

1.1%

1,349

1.3%

TN

629

172

27.3%

1,735,983

26.9%

12

7.0%

167,167

9.6%

TX

1,935

801

41.4%

14,512,014

55.6%

32

4.0%

873,405

6.0%

UT

288

58

20.1%

356,561

12.5%

3

5.2%

14,943

4.2%

VA

896

298

33.3%

2,728,933

33.3%

7

2.3%

7,908

0.3%

VT

255

45

17.6%

102,499

16.4%

0

0.0%

0

0.0%

WA

598

164

27.4%

1,488,096

21.6%

5

3.0%

29,378

2.0%

WI

774

117

15.1%

921,005

16.1%

4

3.4%

93,626

10.2%

WV

706

191

27.1%

247,597

13.4%

24

12.6%

18,725

7.6%

WY

178

35

19.7%

46,074

8.0%

0

0.0%

0

0.0%

Total

32,989

9,172

27.8%

115,395,285

36.7%

845

9.2%

18,635,212

16.1%

Sources: U.S. Census Bureau, American Community Survey, and premium data

While the Affordability Index considers premium price for FR Limits, it appears that many, if

not most, consumers purchased auto insurance policies with coverage limits above the mandated

minimum requirements. The data reveals generally that the lower a family’s median income, the

more likely the family purchases auto insurance at FR Limits (Figure 5). A similar relationship

appears between the purchase at FR Limits and majority-minority ZIP Codes (Figure 6).

Figure 5: Financial Responsibility Limits, Based on Median Family Income

Sources: U.S. Census Bureau, American Community Survey, and premium data

0%

5%

10%

15%

20%

25%

30%

Policies at FR Limit

Market Share

Lower Income Concentration

Higher Income Concentration

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

13

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Study on the Affordability of Personal Automobile Insurance (January 2017)

Figure 6: Financial Responsibility Limits, Based on Minority Concentration

0%

5%

10%

15%

20%

25%

30%

Policies at FR Limit

Market Share

Higher Minority Concentration

Lower Minority Concentration

Source: U.S. Census Bureau, American Community Survey, and premium data

States with a higher number of AP ZIP Codes with an Affordability Index above two percent

also appeared to correlate with states having mandatory PIP coverage requirements and states

having higher percentages of uninsured drivers. Although other factors are also relevant, the

characteristics of the state-required insurance coverage (such as the presence or absence of PIP)

and the number of uninsured drivers may both contribute to AP ZIP Codes having a higher ratio

of insurance costs to income.

B. Illustrations

For illustration purposes, the following paragraphs describe results from the four states with the

largest populations in each census region: California (West), Florida (South), Illinois (Midwest),

and New York (Northeast).

46

1. California

California has over 38 million residents, of whom approximately 66 percent (about 24.9 million

residents) live in 893 AP ZIP Codes. Less than one percent of all AP ZIP Codes in the state (6

AP ZIP Codes) have an Affordability Index value above two percent. Fewer than one hundred

thousand Californians reside in AP ZIP Codes with Affordability Index values greater than two

percent.

California insurance requirements apply to all vehicles operated or parked on California

roadways. The minimum liability insurance requirements are $15,000 for BI per person and

$30,000 per occurrence, as well as $5,000 for PD coverage.

47

The percentage of uninsured drivers in California was approximately 14.7 percent as of 2012.

48

California ranked 13 out of the 50 states plus the District of Columbia with respect to the

percentage of uninsured drivers.

49

46

In these examples, Florida replaced Texas, the largest population state in the South, because of data limitations.

47

See California Insurance Code § 115801.1b. See also State of California Department of Motor Vehicles,

Financial Responsibility (Insurance) Requirements for Vehicle Registration (FFVR 18), available at

https://www.dmv.ca.gov/portal/dmv/detail/pubs/brochures/fast_facts/ffvr18

.

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

14

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Study on the Affordability of Personal Automobile Insurance (January 2017)

On average, according to one survey, a 40-year old man with a clean driving record and good

credit would pay $1,752 per year for car insurance in California, 32 percent above the national

average.

50

Notably, as discussed above (in Section V), California has a low-cost auto insurance

program designed to provide liability car insurance at affordable rates to income-eligible

drivers.

51

In addition, among other related laws and regulations, California prohibits

consideration of ZIP Codes in setting auto insurance rates.

52

Figure 7 summarizes the analysis of California ZIP Codes: the first chart shows all California

ZIP Codes (including the approximately 50 percent that are AP ZIP Codes); the second chart

focuses on AP ZIP Codes alone to show that less than one percent have an Affordability Index

greater than two percent. For the AP ZIP Codes for which sufficient premium data was

available, the Affordability Index results in California range from a low of 0.12 percent to a high

of 3.00 percent; the median result is 0.66 percent and the average is 0.58 percent.

Figure 7: California ZIP Code Analysis

50%

0%

45%

5%

AP

AP with

Index>2%

Non-AP

Unknown

99%

1%

All California ZIP Codes

AP ZIP Codes Only

Sources: U.S. Census Bureau, American Community Survey, and premium data

2. Florida

Florida has over 19 million residents, of whom nearly 41 percent (7.9 million residents) live in

323 AP ZIP Codes. Nearly 30 percent of all AP ZIP Codes in Florida (95 AP ZIP Codes) have

an Affordability Index value above two percent. Over 2.8 million Floridians reside in AP ZIP

Codes with Affordability Index values above two percent.

The state of Florida requires every vehicle with four or more wheels to maintain Florida auto

insurance coverage. Florida requires at least $10,000 PIP and $10,000 PD coverage. Drivers

48

Insurance Information Institute, Uninsured Motorists, supra note 28.

49

Id.

50

Vallett, supra note 42 (emphasizing that actual premiums would vary depending on individual driving factors).

51

California Dep’t of Insurance, California’s Low Cost Auto Insurance, supra note 30.

52

See 10 Cal. Code Regs. tit. 10, § 2632.5 (enumerating mandatory and optional rating factors which do not include

ZIP codes except with respect to relative claims frequency which may be measured based on grouping zip codes or

census tracts in the state).

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

15

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Study on the Affordability of Personal Automobile Insurance (January 2017)

with previous accidents or violations may be required to also carry at least $10,000 BI per person

and $20,000 BI per occurrence.

53

The percentage of uninsured drivers in Florida was approximately 23.8 percent in 2012, the

second highest uninsured driver rate in the nation (ranked 2 out of 50 states plus the District of

Columbia with respect to the percentage of uninsured drivers).

54

On average, according to one survey, a 40-year old man with a clean driving record and good

credit would pay $1,654 per year for car insurance in Florida, 25 percent above the national

55

average.

Figure 8 summarizes the analysis of Florida ZIP Codes: the first chart shows all Florida ZIP

Codes (including the approximately 32 percent that are AP ZIP Codes); the second chart focuses

on AP ZIP Codes alone to show that approximately 29 percent have an Affordability Index

greater than two percent. For the AP ZIP Codes for which sufficient premium data was

available, the Affordability Index results in Florida range from a low of 0.42 percent to a high of

5.15 percent; the median result is 1.69 percent and the average is 1.81 percent.

Figure 8: Florida ZIP Code Analysis

All Florida ZIP Codes

AP ZIP Codes Only

23%

9%

65%

2%

AP

AP with

Index>2%

Non-AP

Unknown

71%

29%

Sources: U.S. Census Bureau, American Community Survey, and premium data

3. Illinois

Illinois has nearly 13 million residents, of whom approximately one-third (over 4.2 million

residents) live in 286 AP ZIP Codes. Based on an analysis of approximately 25 percent of

Illinois premium data, fewer than four percent of the state’s total AP ZIP Codes (10 AP ZIP

Codes) have an Affordability Index value above two percent. Based on the available data, fewer

53

DMV Florida, Florida Car Insurance Information, available at http://www.dmvflorida.org/auto-insurance.shtml.

See also Fla. Stat. §§ 324.022, 627.736.

54

Insurance Information Institute, Uninsured Motorists, supra note 28 (citing Insurance Research Council). See

also Steve Bousquet, “Car insurance rates skyrocket as Floridians drive more and crash more,” Miami Herald (May

20, 2016), available at http://www.miamiherald.com/news/politics-government/state-politics/article78819742.html

.

55

Vallett, supra note 42 (emphasizing that actual premiums would vary depending on individual driving factors).

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

16

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Study on the Affordability of Personal Automobile Insurance (January 2017)

than 80,000 Illinois residents live in AP ZIP Codes with an Affordability Index value above two

percent.

Illinois requires all motor vehicle owners to have insurance limits of at least $25,000 BI per

person and $50,000 per occurrence, as well as $20,000 in PD coverage. UM coverage is also

mandatory.

56

The percentage of uninsured drivers in Illinois is approximately 13.3 percent as of 2012. Illinois

ranked 20 out of 50 states and the District of Columbia with respect to the percentage of

uninsured drivers.

57

On average, according to one survey, a 40-year old man with a clean driving record and good

credit would pay $1,035 per year for car insurance in Illinois, 22 percent below the national

58

average.

Figure 9 summarizes the analysis of Illinois ZIP Codes: the first chart shows all Illinois ZIP

Codes (including the approximately 21 percent that are AP ZIP Codes); the second chart focuses

on AP ZIP Codes alone to show that approximately 3 percent have an Affordability Index greater

than two percent. For the AP ZIP Codes for which sufficient premium data was available, the

Affordability Index results in Illinois range from a low of 0.38 percent to a high of 3.50 percent;

the median result is 1.00 percent and the average is 1.11 percent.

Figure 9: Illinois ZIP Code Analysis

20%

1%

78%

1%

AP

AP with

Index>2%

Non-AP

Unknown

97%

3%

All Illinois ZIP Codes

AP ZIP Codes Only

Sources: U.S. Census Bureau, American Community Survey, and premium data

4. New York

New York has nearly 20 million residents, of whom approximately 44 percent (over 8.6 million)

live in 403 AP ZIP Codes. About 28 percent of the state’s total AP ZIP Codes (115 AP ZIP

56

See Illinois Dep’t of Insurance, Shopping for Automobile Insurance (Jan. 2015) (citing 625 ILCS 5/7601; 625

ILCS 5/7-203), available at http://insurance.illinois.gov/autoinsurance/shopping_auto_ins.asp.

57

Insurance Information Institute, Uninsured Motorists, supra note 28.

58

Vallett, supra note 42 (emphasizing that actual premiums would vary depending on individual driving factors).

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

17

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Study on the Affordability of Personal Automobile Insurance (January 2017)

Codes), have an Affordability Index value above two percent. Approximately 5.2 million New

York state residents live in AP ZIP Codes with an Affordability Index value above two percent.

In order to satisfy state financial responsibility requirements and register a car, consumers must

purchase PIP coverage, as well as limits of at least $25,000 BI per person, $50,000 for BI to two

or more persons, and $100,000 for injuries resulting in the death of two or more persons. The

minimum limit of coverage for PD liability protection in New York is $10,000 per accident. All

auto insurance policies must provide UM coverage for bodily injury.

59

The percentage of uninsured drivers in New York was approximately 5.3 percent as of 2012, the

third-lowest uninsured driver rate in the country (ranked 49 out of the 50 states plus the District

of Columbia with respect to the percentage of uninsured drivers).

60

On average, according to one survey, a 40-year old man with a clean driving record and good

credit would pay $1,050 per year for car insurance in New York, 21 percent below the national

61

average.

Figure 10 summarizes the analysis of New York ZIP Codes: the first chart shows all New York

ZIP Codes (including the approximately 22 percent that are AP ZIP Codes); the second chart

focuses on AP ZIP Codes alone to show that approximately 28 percent have an Affordability

Index greater than two percent. For the AP ZIP Codes for which sufficient premium data was

available, the Affordability Index results in New York range from a low of 0.46 percent to a high

of 8.83 percent; the median result is 1.49 percent and the average is 1.95 percent.

Figure 10: New York ZIP Code Analysis

All New York ZIP Codes

AP ZIP Codes Only

16%

6%

72%

6%

AP

AP with

Index>2%

Non-AP

Unknown

72%

28%

Sources: U.S. Census Bureau, American Community Survey, and premium data

59

New York State Dep’t of Financial Services, Shopping for Auto Insurance: Minimum Auto Insurance

Requirements, available at http://www.dfs.ny.gov/consumer/auto/auto1202.htm.

60

Insurance Information Institute, Uninsured Motorists, supra note 28.

61

Vallett, supra note 42 (emphasizing that actual premiums would vary depending on individual driving factors).

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

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________________________________________________________________________

______________________________________________________________________________

Study on the Affordability of Personal Automobile Insurance (January 2017)

VIII. Next Steps

Numerous related and complex factors can affect personal auto premium pricing and

affordability. By providing a numeric index that will be readily comparable over time, this

Study intends to provide an objective basis for measuring the affordability of personal auto

insurance for Affected Persons. This first analysis provides an initial indication that

approximately 18.6 million Americans live where auto insurance costs more than the

Affordability Index ratio of two percent of median household income.

This Study analyzed thousands of population and premium data points nationwide to provide a

national ZIP Code-level analysis of personal auto insurance affordability for Affected Persons

using the Affordability Index. The Study thereby provides baseline measurements that

policymakers, regulators, and consumers can use for future national, objective, quantifiable

comparisons of changes in auto insurance affordability over time.

IX. Conclusion

FIO previously published notice of a proposed collection of data documents from the largest auto

insurers nationwide.

62

FIO currently is reviewing comments in response to that notice, and

anticipates that, in 2017, it will collect more data from larger auto insurers. FIO will not collect

this data directly, but looks forward to working with insurers through statistical agents to

perform the aggregation exercise. Data from these large insurers would permit a more

comprehensive affordability analysis that would be more meaningful to stakeholders.

Specifically, the additional data will be used to supplement and update this Study; refine the

calculation of the Affordability Index; and allow for evaluation of trends and changes in personal

auto insurance affordability for Affected Persons.

FIO will continue to monitor auto insurance affordability and report its findings. The Study is

necessarily qualified in its analysis because this is a first-ever exercise. As more data is

gathered, and more feedback is provided, results will be refined in future studies with the

objective of providing improved insight.

62

Collection Request, 81 Fed. Reg. 45,381, supra note 7.

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

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