PCI To Highlight Affordability And Availability Of Insurance In Urban Areas During NAIC Hearing

Chicago, IL – The Property Casualty Insurers Association of America (PCI) will testify Monday, Dec. 11 during the National Association of Insurance Commissioners' (NAIC) Market Regulation and Consumer Affairs (D) Committee's public hearing on marketplace issues that personal auto and homeowners insurance in urban areas is affordable compared to other necessary goods and services, such as housing, healthcare and utilities. In addition, many insurers have recently decreased rates which, offers urban policyholders additional cost savings.

The Market Regulation and Consumer Affairs Committee will be taking testimony on risk classification in personal lines and implications of risk classification on availability, affordability and fairness. This hearing is in part in response to a presentation made at the Fall NAIC/Consumer Liaison Committee meeting where several funded consumer groups and other consumer organizations charged that some insurance underwriting factors have a disparate impact on low income and minority neighborhoods.

"The subject of insurance affordability and availability has received thorough examination over the years," said Donald Cleasby, vice president, regional manager and counsel for PCI. "Study after study has shown that losses and claim adjustment expenses are typically highest in urban areas due to factors such as more expensive healthcare, labor repair and construction rates, and attorney fees, and high occurrence of auto accidents, crime and fraud, to name a few. As a result of the higher risk of loss in urban areas, consumers who live in these areas tend to pay higher premiums compared to consumers who live in lower risk areas. In order to achieve equity among all policyholders, rates should accurately reflect losses and expenses."

The common flaw in the studies conducted by the funded consumers groups is that they do not take into account loss costs. After collecting and analyzing decades of loss experience, insurance companies have determined that the geographical location of where the vehicle is garaged and where the dwelling is located is one of the most predictive variables in determining insured loss expectancy.

"The underlying costs connected to insurance claims are typically absent from industry opponents' studies on disparate impact," said Cleasby. "This is an important omission since rates should first and foremost reflect losses in order to be accurate and equitable. If the costs of claims are taken into account, then this would confirm the fact that policyholders in metropolitan areas pay higher insurance premiums than elsewhere because of the loss experience incurred in these areas, not because of their ethnicity or income level."

In a study on affordability and availability of personal lines insurance in metropolitan areas, PCI sought to compare the relative price level of insurance with the relative price level of other goods and services. This analysis offers some insight into the question of whether insurance is any more or less affordable than other necessary goods and services. PCI found that the cost of transportation, which includes auto insurance, in the 10 most populated metropolitan areas combined is 11.1 percent higher than the national average. However, compared to the national average, the costs of other goods and services are even greater: housing (40.0 percent higher); healthcare (21.8 percent higher); and utilities (12.6 percent higher). Only the relative costs of food and miscellaneous goods and services are lower than transportation (9.5 percent - food and 7.9 percent - miscellaneous vs. 11.1 percent - transportation).

The cost of homeowners insurance in the eight largest metropolitan areas is 14.0 percent higher than the countrywide average. Like auto insurance found in urban communities, the relative cost of homeowners insurance (special policy form) is more within individuals' and households' means than the relative cost of the other necessities of housing, healthcare and utilities (14.0 percent - homeowners insurance vs. 52.0 percent - housing, 24.3 percent - healthcare and 15.9 percent - utilities).

"Based on these figures, auto and homeowners insurance is a good buy and relatively more affordable for people living in urban areas than housing, healthcare, and utilities," said Cleasby. "Additionally there are fewer people applying for insurance in the auto and homeowners residual markets, which shows that insurance is generally available to those who want it, even those who live in metropolitan communities. Another indication of auto insurance availability and affordability in urban areas is the decline in uninsured motorists in the recent past. When these issues are examined in a comprehensive manner, the evidence shows that underwriting and rating decisions are objective and are based on legitimate color-blind and income-blind predictors of risk. It is also clear that insurance is accessible in urban areas and the higher cost for insurance can be accounted for by the higher than average insurance losses experienced in metropolitan areas."

PCI is composed of more than 1,000 member companies, representing the broadest cross-section of insurers of any national trade association. PCI members write over $194B in annual premium, 40.1 percent of the nation's property/casualty insurance. Member companies write 51.3 percent of the U.S. automobile insurance market, 39 percent of the homeowners market, 32.1 percent of the commercial property and liability market, and 38.7 percent of the private workers compensation market.

SOURCE: The Property Casualty Insurers Association of America