The U.S. government in recent years has started building a database of consumer complaints about banks and credit card companies, and levying millions of dollars in fines against what it believes to be bad actors. Now there's a potential new battleground in the financial services industry.
Los Angeles, CA -- (SBWIRE) -- 08/11/2014 -- In April, a 4-year-old federal office announced that it would step up efforts to study the affordability of car insurance, an industry typically regulated by states.
Nearly every state requires drivers to have coverage, but about 15 percent of motorists are uninsured, the office said.
Created by the 2010 Dodd-Frank Wall Street Reform & Consumer Protection Act, which has mandated changes to a wide range of financial services firms nationwide, the Federal Insurance Office has the authority to, among other things, "monitor the extent to which traditionally underserved communities and consumers have access to affordable" car and home insurance.
"The Federal Insurance Office is evaluating that public input and looking to identify areas of consensus as we move to define affordability … in a reasonable manner," Michael McRaith, the office's director, said Friday. McRaith previously headed Illinois' insurance department.
Affordability, of course, hinges on an individual's income, which takes the issue beyond that of a policy's cost. Pinning down what's affordable becomes a stickier question to answer, with some doubting that it's even a major problem.
Bridge Communities, a Glen Ellyn-based nonprofit that helps homeless families in DuPage County, runs a program that gives donated cars to needy families. Bridge program director Karen Stewart said she generally has noticed that buying mandated car insurance is less of a financial hardship for recipient families than paying for car repairs and gasoline.
Indeed, a survey by the U.S. Bureau of Labor Statistics shows that low-income households spend more than twice as much on gasoline as they do on car insurance.
One insurance industry trade group, citing the same set of statistics in its public comments, makes the case that the poor, on average, spend nearly as much on alcohol and tobacco combined as they do on car insurance. The group, the National Association of Mutual Insurance Companies, counts Bloomington-based State Farm among its members.
The Consumer Federation of America, citing the same statistics, counters that the lowest-income households on average still spend $102 more on car insurance than on cigarettes and alcohol.
That would be $560 versus $458, respectively, the average data shows.
Others maintain that car insurance is best left to the states."Since the limits and types of auto insurance coverage are within the realm of the state, I truly believe that while the feds might have an interest in some of this, they have no business doing anything to usurp states' rights in this area," James Kamphenkel, the owner of Greenwald Insurance Agency in Greenwald, Minn., wrote in a letter to the federal office.
Paul Newsome, an insurance industry analyst for investment bank Sandler O'Neill & Partners in Chicago, said he doesn't believe the federal office will be that active on the affordability front because the states already are "aggressive when it comes to the affordability of auto insurance."
Still, the creation of the Federal Insurance Office signals that "there's a slow creep of federal regulation into the property and casualty insurance industry," Newsome said.
The cost of car insurance varies widely from state to state, according to the Insurance Information Institute.
Premiums may be influenced by such factors as driving record, driver age, residence, parking location, mileage driven, gender, the vehicle's make and model, credit score, and desired and required coverage.
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