81 FR 45372 - Monitoring Availability and Affordability of Automobile Insurance
DEPARTMENT OF THE TREASURY Federal Register Volume 81, Issue 134 (July 13, 2016)
Federal Register Volume 81, Issue 134 (July 13, 2016)
| Page Range | 45372-45381 | |
| FR Document | 2016-16536 |
[Federal Register Volume 81, Number 134 (Wednesday, July 13, 2016)] [Notices] [Pages 45372-45381] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-16536] ----------------------------------------------------------------------- DEPARTMENT OF THE TREASURY Monitoring Availability and Affordability of Automobile Insurance AGENCY: Federal Insurance Office, Departmental Offices, Treasury. ACTION: Notice; advising adoption of methodology to monitor affordability of personal automobile insurance. ----------------------------------------------------------------------- SUMMARY: The Federal Insurance Office (FIO) of the U.S. Department of the Treasury (Treasury) issues this notice pursuant to its authority to monitor the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income (LMI) persons have access to affordable personal automobile insurance. In July 2015, FIO sought comments from stakeholders, including state insurance regulators, consumer organizations, representatives of the insurance industry, policyholders, academics, and others regarding: FIO's proposed working definition of ``affordability'' in relation to personal automobile insurance; the key factors FIO should use to calculate an affordability index for Affected Persons (e.g., premium, income, and other metrics); and how best to obtain appropriate data to monitor effectively the affordability of personal automobile insurance for Affected Persons. After carefully considering all the comments received in response to this and a previous solicitation, in conjunction with additional research and consultation, FIO has adopted a method to measure the affordability of automobile insurance for Affected Persons: FIO will calculate its Affordability Index by dividing the average (or mean) annual written personal automobile liability premium in the voluntary market by the median household income for U.S. Postal Service ZIP Codes (ZIP Codes) identified as being majority-minority or majority-LMI. FIO will presume that personal automobile liability insurance is affordable for Affected Persons if the Affordability Index is less than or equal to 2 percent. To undertake the study of the affordability of automobile insurance for Affected Persons, FIO will collect and analyze premium data received and aggregated by statistical agents. In addition, FIO will use data publicly available through the U.S. Census Bureau. In combination, these data sources should facilitate analysis necessary for FIO to monitor the affordability of personal auto insurance for Affected Persons. FIO will report its findings annually, and note, among other things, the trend of the Affordability Index relative to each of the ZIP Codes analyzed. FOR FURTHER INFORMATION CONTACT: Lindy Gustafson, Federal Insurance Office, 202-622-6245 (not a toll free number). SUPPLEMENTARY INFORMATION: I. Background Subtitle A of Title V of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Wall Street Reform Act) established FIO in Treasury and provides it with a number of authorities, including the authority to monitor the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income (LMI) persons (collectively, Affected Persons) have access to affordable insurance products regarding all lines of insurance, other than health insurance.\1\ --------------------------------------------------------------------------- \1\ 31 U.S.C. 313(c)(1)(B). --------------------------------------------------------------------------- In notices published in the Federal Register by FIO in April 2014 (April 2014 Notice) \2\ and July 2015 (July 2015 Notice),\3\ FIO explained the reasons it is monitoring the availability and affordability of personal automobile liability insurance for Affected Persons. They are: --------------------------------------------------------------------------- \2\ Monitoring Availability and Affordability of Auto Insurance, 79 FR 19,969 (Apr. 10, 2014) (April 2014 Notice). \3\ Monitoring Availability and Affordability of Auto Insurance, 80 FR 38,277 (Jul. 2, 2015) (July 2015 Notice). --------------------------------------------------------------------------- 1. Nearly all jurisdictions of the United States generally require a driver or owner of a motor vehicle to maintain automobile liability insurance or financial security that may be satisfied by automobile liability insurance and that is applicable at the time of an accident, while operating a motor vehicle, or at the time of registering a motor vehicle; [[Page 45373]] 2. On a nationwide basis, the percentage of uninsured motorists was approximately 14 percent between 2002 and 2009, before decreasing to 12.3 percent in 2010, 12.2 percent in 2011, and 12.6 percent in 2012; 3. Owning an automobile gives low-income commuters greater access to jobs since public ``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;'' \4\ and --------------------------------------------------------------------------- \4\ Clifford Winston, ``On the Performance of the U.S. Transportation System: Caution Ahead,'' Journal of Economic Literature, Vol. 51, No. 3 at 805 (2013) (citations omitted), available at https://www.aeaweb.org/articles?id=10.1257/jel.51.3.773. --------------------------------------------------------------------------- 4. Although some stakeholders have asserted that automobile insurance has become more affordable over time, representatives for consumers continue to assert that automobile insurance has become less affordable for Affected Persons. A. The April 2014 Notice In the April 2014 Notice, FIO requested comments regarding, among other things: A reasonable and meaningful definition of affordability of personal automobile insurance, and the metrics and data FIO should use to monitor the extent to which Affected Persons have access to affordable personal automobile insurance.\5\ --------------------------------------------------------------------------- \5\ April 2014 Notice, supra note 2, at 19,970. --------------------------------------------------------------------------- B. The July 2015 Notice In the July 2015 Notice, FIO sought comments from the public on a framework for measuring the affordability of automobile insurance for Affected Persons. Based on comments submitted in response to the April 2014 Notice, FIO proposed a working definition for affordable personal auto insurance based on an affordability index. To do that, the July 2015 Notice set out in sequence: (1) A proposed definition of affordability; (2) a proposed definition and proposed calculation of an affordability index; (3) a proposed calculation of average premium; (4) a proposed definition of the market scope for an affordability index; and (5) a proposed definition of Affected Persons.\6\ Based on its consideration of those elements, FIO proposed the following working definition of affordable personal auto insurance: --------------------------------------------------------------------------- \6\ July 2015 Notice, supra note 3. A personal auto[mobile] liability insurance policy is affordable if the annual premiums are within the financial means of most people as measured by an affordability index for Affected Persons in the standard market. Personal auto[mobile] liability insurance is presumed to be affordable if, with respect to household income, the affordability index does not exceed two percent for Affected Persons in urban areas, for LMI persons within a specific geographic area (including rural areas), or for all individuals in majority minority geographic areas.\7\ --------------------------------------------------------------------------- \7\ Id. at 38,280. --------------------------------------------------------------------------- i. The Definition of Affordability In developing its working definition of affordability, FIO considered three definitions submitted by commenters on the April 2014 Notice and ultimately proposed adopting the definition of ``affordability'' derived from a dictionary and submitted by one commenter: ``being within the financial means of most people.'' \8\ FIO explained that this ``common sense definition may be used to develop `a practical and effective approach to monitoring access to affordable personal auto[mobile] insurance.' '' \9\ --------------------------------------------------------------------------- \8\ Id. at 38,279. \9\ Id. (quoting Property and Casualty Insurers Association of America, at 1 (June 9, 2014), available at http://www.regulations.gov/#!documentDetail;D=TREAS-DO-2014-0001-0020). --------------------------------------------------------------------------- ii. Use of an Affordability Index FIO observed that some federal agencies use an index to measure affordability and provided examples. For instance, the U.S. Department of Housing and Urban Development (HUD) has a publicly available location affordability index that estimates the percentage of a family's income dedicated to the combined cost of housing and transportation in a given location.\10\ Additionally, the Consumer Financial Protection Bureau (CFPB) has a definition of ``qualified mortgage'' based, in part, on the ratio of the consumer's total monthly debt to total monthly income.\11\ Given the use of indices by other federal agencies, and FIO's statutory authority to monitor affordability for Affected Persons, FIO endorsed the concept of an affordability index for personal automobile insurance and proposed to calculate an affordability index for personal automobile insurance for Affected Persons.\12\ --------------------------------------------------------------------------- \10\ Id. at 38,279 & fn. 33 (citing HUD, ``Location Affordability Portal,'' available at http://www.locationaffordability.info/lai.aspx). \11\ 12 CFR 1026.43(e)(2)(vi). \12\ July 2015 Notice, supra note 3, at 38,279. --------------------------------------------------------------------------- iii. Average Premium FIO stated that an affordability index for Affected Persons may be derived from a broad set of criteria, such as the average premium for personal liability insurance, personal injury protection, comprehensive insurance, collision insurance, uninsured motorist insurance, and underinsured motorist insurance; or more narrow criteria, such as the average premium for personal automobile liability insurance for a given year.\13\ FIO proposed to limit the calculation of an affordability index to the average annual personal automobile liability insurance premium for Affected Persons after considering comments to the April 2014 Notice. FIO chose this approach because states generally require the purchase of personal automobile liability insurance as a condition of driving or owning a motor vehicle.\14\ --------------------------------------------------------------------------- \13\ Id. \14\ Id. at 38,278. See also Insurance Information Institute, ``Compulsory Auto/Uninsured Motorists'' (June 2016) (listing automobile financial responsibility limits and enforcement by state), available at http://www.iii.org/issue-update/compulsory-auto-uninsured-motorists. New Hampshire is the only state that does not require the purchase of personal automobile liability insurance; however, drivers must be able to demonstrate they are able to provide sufficient funds to meet New Hampshire Motor Vehicle Financial Responsibility Requirements in the event of an ``at- fault'' accident. See State of New Hampshire Insurance Department, ``Your Guide to Understanding Auto Insurance in the Granite State,'' at 1, available at http://www.nh.gov/insurance/consumers/documents/nh_auto_guide.pdf. --------------------------------------------------------------------------- FIO noted that the affordability of personal automobile insurance may be calculated by an examination of the average premium calculated as either (1) the total annual written premium for all insurers writing personal automobile insurance divided by the total number of policies; or (2) the total annual premium quoted by a sample of insurers writing personal automobile insurance divided by the number of insurers in the sample. FIO proposed to use one or both of these average premium metrics for annual premium depending on available data sources.\15\ --------------------------------------------------------------------------- \15\ July 2015 Notice, supra note 3, at 38,279. --------------------------------------------------------------------------- iv. Market Scope for an Affordability Index FIO explained that an affordability index may be calculated for the entire market for personal automobile liability insurance or a specific market within personal automobile insurance because, historically, the automobile insurance market has been divided into three segments: (1) The standard market; (2) the non-standard market; and (3) the residual market. FIO described the residual market as generally comprised of the highest risk drivers, i.e., drivers who do not qualify for personal automobile insurance offered in the standard market or non-standard market; the non-standard market as [[Page 45374]] comprised of high risk drivers, such as new drivers, drivers with moving violations, drivers with a rare or unusual motor vehicle, or drivers with a high automobile insurance policy cancellation or non- renewal rate; and the standard market as comprised of all other drivers. FIO reported that generally annual premiums for personal automobile insurance are highest in the residual market, followed by the non-standard market, and, finally, the standard market.\16\ Accordingly, FIO proposed to limit the calculation of an affordability index for personal automobile liability insurance to the standard market in order to diminish the impact of the annual premiums charged to the highest risk drivers. --------------------------------------------------------------------------- \16\ Id. at 38,820 & fn. 38, noting that, in 2011, of the 330 insurers that wrote personal auto insurance in the standard and non- standard market, 95 wrote personal auto insurance in the non- standard market. Of the 95 insurers in the non-standard market, 15 also wrote in the standard market. See StoneRidge Advisors, LLC, ``Non-Standard Auto Insurance Market Overview & M&A Trends,'' View from the Ridge (August 2012), at 2, available at http://stoneridgeadvisors.com/Content/View_From_The_Ridge_August_2012.pdf. --------------------------------------------------------------------------- In describing the framework that would be applied to determine whether personal automobile insurance is affordable, FIO examined the level of a person's income that should be devoted to that expenditure and cited to the suggestion by at least one commenter to the April 2014 Notice, that personal automobile insurance is affordable if it does not claim more than 2 percent of a low-income family's take-home pay.\17\ FIO also cited another study of the affordability of personal automobile insurance that found the national average insurance expenditures divided by national median income has been below 2 percent since 1995.\18\ In addition, FIO also cited to a Current Employment Statistics (CES) report that found the average expenditure for all households for automobile insurance and the average income after taxes for all households, based on 2013 data, indicated that all consumers spent about 1.6 percent of average income after taxes on automobile insurance.\19\ Based on this analysis, FIO proposed to presume personal automobile liability insurance is affordable if, for Affected Persons, the affordability index is less than or equal to 2 percent of household income.\20\ --------------------------------------------------------------------------- \17\ July 2015 Notice, supra note 3, at 38,278. \18\ Id. at 38,280 (citing Insurance Research Council, Auto Insurance Affordability (November 2013), at 7). \19\ Id. at 38,280. Each month the Bureau of Labor Statistics' CES program surveys approximately 146,000 businesses and government agencies, representing approximately 623,000 individual worksites, in order to provide detailed industry data on employment, hours, and earnings of workers on nonfarm payrolls. See BLS, ``Current Employment Statistics--CES National,'' available at http://www.bls.gov/ces/. \20\ July 2015 Notice, supra note 3, at 38,280. --------------------------------------------------------------------------- v. Definition of Affected Persons FIO is statutorily authorized to monitor the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income persons have access to affordable insurance products. FIO adopted the term ``Affected Persons'' to describe traditionally underserved communities and consumers, minorities, and low- and moderate-income (LMI) persons. FIO initially proposed to use ``urban area,'' as defined by the U.S. Census Bureau (Census Bureau), as a proxy for traditionally underserved communities and consumers.\21\ --------------------------------------------------------------------------- \21\ Id. (proposing to define urban area as densely developed territory that encompasses at least 2,500 people, of which at least 1,500 reside outside the institutional group quarters. See Census Bureau, ``2010 Census Urban Area FAQs,'' available at https://www.census.gov/geo/reference/ua/uafaq.html). --------------------------------------------------------------------------- FIO then proposed to define LMI by adapting the definitions used by the Federal Deposit Insurance Corporation (FDIC), which defines low- income as ``individuals and geographies having a median family income less than 50 percent of the area median income'' and moderate-income as ``individuals and geographies having a median family income of at least 50 percent and less than 80 percent of the area median income.'' \22\ ``The area median income is: (1) The median family income for the [metropolitan statistical area]; or (2) the statewide non-metropolitan median family income, if a person or geography is located outside a [metropolitan statistical area].'' \23\ FIO proposed to adapt this definition by using median household income as defined and identified by the Census Bureau,\24\ instead of median family income, in its study of affordability of personal automobile insurance. Accordingly, FIO proposed to define LMI persons as ``individuals living in areas where the annual income of the geographic area is less than 80 percent of the median household income of a metropolitan statistical area or state.'' \25\ --------------------------------------------------------------------------- \22\ July 2015 Notice, supra note 3, at 38,280 & fn. 41 (quoting FDIC, ``Community Reinvestment Act (CRA) Performance Ratings,'' available at https://www5.fdic.gov/crapes/peterms.asp). \23\ Id. \24\ Id. at 38,280 & fn. 43, noting that household income includes income received on a regular basis by the householder and all other individuals 15 years of age and older in the household, whether related to the householder or not. It does not include capital gains or noncash benefits. According to the Census Bureau, ``respondents report income earned from wages or salaries much better than other sources of income and that the reported wage and salary income is nearly equal to independent estimates of aggregate income.'' Census Bureau, ``About Income,'' available at https://www.census.gov/hhes/www/income/about/. \25\ July 2015 Notice, supra note 3, at 38,280. --------------------------------------------------------------------------- FIO noted that the term ``minorit[y]'' is defined by law as ``Black American, Native American, Hispanic American, or Asian American.'' \26\ It proposed to use ZIP Codes in which the minority population exceeds 50 percent as the standard for majority-minority geographic areas. --------------------------------------------------------------------------- \26\ 31 U.S.C. 313(c)(1)(B) (incorporating by reference the definition established in 12 U.S.C. 1811, note). --------------------------------------------------------------------------- vi. Data Source and Request for Comments FIO concluded the July 2015 Notice by describing the data needed to conduct its study, and sought opinions on how best to collect that information. FIO explained that it considered the currently available data relating to premiums for personal automobile insurance and concluded that the data is inadequate for FIO to monitor the extent to which Affected Persons have access to affordable personal automobile insurance.\27\ FIO stated that insurers have the most complete and accurate information that would allow it to perform its function of monitoring the extent to which Affected Persons have access to affordable automobile insurance and would be able to provide accurate price quotes for a given profile of a driver, including for a specific geographic area.\28\ In addition, FIO noted, insurers have the information to calculate the average annual premium for liability coverage for personal automobile liability insurance in the standard market for urban areas, and areas where the majority of residents are minorities or LMI persons.\29\ --------------------------------------------------------------------------- \27\ July 2015 Notice, supra note 3, at 38,280. \28\ Id. at 38,281. \29\ Id. --------------------------------------------------------------------------- Finally, FIO again requested that commenters provide feedback on the following: 1. FIO's proposed working definition of ``affordability'' in relation to personal automobile insurance; 2. The key metrics FIO proposes to use to calculate an affordability index for Affected Persons (e.g., premium, income, and other metrics); and 3. The best approach for FIO to obtain appropriate data to monitor effectively the affordability of personal automobile insurance for Affected Persons.\30\ --------------------------------------------------------------------------- \30\ Id. --------------------------------------------------------------------------- [[Page 45375]] II. Final Working Definition of Affordable Personal Auto Insurance After considering all the comments received--to both the April 2014 and July 2015 Notices \31\--and after undertaking additional research and stakeholder consultation, FIO has adopted a final working framework to study the affordability of personal auto insurance for Affected Persons. Personal auto liability insurance is presumed to be affordable if using an affordability index that is calculated by dividing the average annual written personal automobile liability premium in the voluntary market by the median household income for ZIP Codes identified as being majority-minority or majority-LMI, the Affordability Index does not exceed 2 percent. --------------------------------------------------------------------------- \31\ Eighteen comments were submitted in response to the April 2014 Notice and 11 submitted in response to July 2015 Notice. All comments are available through www.regulations.gov. --------------------------------------------------------------------------- In adopting this final working definition, FIO has made some changes to the proposed working definition from the July 2015 Notice based on comments and additional research. First, FIO will use the average annual written personal automobile liability premium in the voluntary market to calculate the Affordability Index. Second, FIO has adopted a different method of defining and accounting for Affected Persons to reflect issues with measuring traditionally underserved communities. Third, FIO has clarified that, to calculate the Affordability Index, FIO will use median household income data for ZIP Codes identified as majority-minority and majority-LMI areas. Finally, FIO has concluded that, based on comments and its additional research and consultation, all other aspects of the working definition are adopted as proposed. A. Elements of Working Definition of Affordable Personal Automobile Liability Insurance for Affected Persons For its final working definition, FIO has adopted an index to measure the affordability of automobile insurance for Affected Persons. FIO's Affordability Index will be calculated as the average annual written personal automobile liability premium in the voluntary market divided by the median household income for the ZIP Codes identified as majority-minority and majority-LMI. i. Affordability Index Based on comments received in response to the July 2015 Notice, insurers generally oppose the concept of using an affordability index to measure affordability for each category of Affected Persons. The Financial Services Roundtable (FSR) commented that a ``mathematical index . . . attempts to reduce a myriad of complex factors into a single `one-size fits all' formula,'' and ``is inappropriate, insufficient, and perhaps even misleading as a measure of auto insurance affordability.'' \32\ The Property and Casualty Insurers Association of America (PCI) commented that an ``affordability index does not consider that insurers have little or no control over the costs that drive auto insurance premiums and the `pass through' nature of the insurance mechanism.'' \33\ Meanwhile, the National Association of Professional Insurance Agents (PIA) commented that ``attempts to define affordability as a fixed measure of income, [do] not give an accurate assessment of the non-insurance related factors--such as state tort law and highway safety measures--that impact insurance prices.'' \34\ Two groups of consumer advocates that provided comments--the Consumer Federation of America (CFA) and New Yorkers for Responsible Lending (NYRL)--support the creation and use of an affordability index to define affordability.\35\ CFA commented that it supports ``an affordability index that defines affordability as a . . . percentage of a household's annual income.'' \36\ NYRL commented that ``an affordability index is an effective way to evaluate the affordability of personal auto insurance'' and ``should be based on the cost of auto insurance as percentage of income.'' \37\ The Insurance Research Council (IRC) also offered support, acknowledging that an affordability index can be a useful method for monitoring affordability over time.\38\ In an August 2015 IRC Study, Trends in Auto Insurance Affordability (the IRC 2015 Study), the IRC used ``expenditure and income data to form the IRC's expenditure-to-income ratio.'' \39\ --------------------------------------------------------------------------- \32\ FSR, at 2, 7 (August 31, 2015), available at http://www.regulations.gov/#!documentDetail;D=TREAS-DO-2015-0005-0011 (FSR Comment). \33\ PCI, at 2 (August 13, 2015), available at http://www.regulations.gov/#!documentDetail;D=TREAS-DO-2015-0005-0006 (PCI Comment). \34\ PIA, at 2 (August 28, 2015), available at http://www.regulations.gov/#!documentDetail;D=TREAS-DO-2015-0005-0004 (PIA Comment). \35\ CFA, at 1 (August 31, 2015), available at http://www.regulations.gov/#!documentDetail;D=TREAS-DO-2015-0005-0014 (CFA Comment): NYRL, at 1 (August 31, 2015), available at http://www.regulations.gov/#!documentDetail;D=TREAS-DO-2015-0005-0010 (NYRL Comment). ``CFA'' includes all signatories to the comment letter--10 national groups (Americans for Financial Reform; Consumer Action; Consumer Federation of America; Consumers Union; NAACP; National Association of Consumer Advocates; National Consumer Law Center, on behalf of its low-income clients; National Council of LaRaza; U.S. PIRG, and United Policyholders) as well as 39 state groups from Alaska, California, Delaware, Florida, Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Montana, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Utah and Virginia. \36\ CFA Comment, supra note 37, at 2. \37\ NYRL Comment, supra note 37, at 1. \38\ IRC, at 1 (August 28, 2015), available at http://www.regulations.gov/#!documentDetail;D=TREAS-DO-2015-0005-0005 (IRC Comment). \39\ IRC 2015 Study at 17, summary available at http://www.insurance-research.org/research-publications/trends-auto-insurance-affordability. --------------------------------------------------------------------------- FIO acknowledges the various objections to adopting an affordability index as a tool to measure and evaluate the affordability of personal automobile insurance. FIO recognizes that some commenters view an index as reducing a myriad of complex factors into a single formula,\40\ or that an index, potentially, disregards non-insurance factors such as state tort law and highway safety measures.\41\ However, FIO is influenced by the established practices of other federal agencies that use indices to measure affordability, and for other purposes. Significantly, HUD created the Location Affordability Index to provide estimates of the percentage of a family's income dedicated to the combined cost of housing and transportation in a given location.\42\ Furthermore, FIO notes that the Bureau of Labor Statistics (BLS) in the U.S. Department of Labor (DOL) has long produced the Consumer Price Index (CPI), the most widely used measure of inflation, which provides information about price changes in the U.S. economy,\43\ while the U.S. Department of Commerce, Bureau of Economic Analysis produces the Personal Consumption Expenditure Price Index (PCE),\44\ generally thought to be ``the single most comprehensive and theoretically compelling measure of consumer prices.'' \45\ And, even within the private sector, the National Association of Realtors produces the monthly Housing Affordability Index, which provides a way to track over time [[Page 45376]] whether housing is becoming more or less affordable for the typical household.\46\ Finally, the IRC produces its own automobile insurance affordability index.\47\ --------------------------------------------------------------------------- \40\ FSR Comment, supra note 34, at 2. \41\ PIA Comment, supra note 36, at 2. \42\ Additional details about the HUD Location Affordability Index are available at http://www.locationaffordability.info/default.aspx. \43\ Additional information about the Consumer Price Index is available at http://www.bls.gov/cpi/home.htm. \44\ Additional information about the Personal Consumption Expenditure Price Index is available at http://www.bea.gov/faq/index.cfm?faq_id=518. \45\ Craig S. Hakkio, ``PCE and CPI Inflation Differentials: Converting Inflation Forecasts,'' Economic Review, at 51 (Federal Reserve Bank of Kansas City 2008), available at https://www.kansascityfed.org/publicat/econrev/pdf/1q08hakkio.pdf. \46\ Additional information about the Housing Affordability Index is available at http://www.realtor.org/topics/housing-affordability-index. \47\ IRC 2015 Study, supra note 41. --------------------------------------------------------------------------- FIO notes the persuasive precedent of federal agencies using indices to measure affordability, among other economic measures, and agrees with those commenters who assert that an affordability index is an effective and meaningful way to measure and evaluate the affordability of personal automobile insurance. Furthermore, as FIO discussed in the July 2015 Notice, other federal agencies use indices to measure other kinds of affordability. Accordingly, given FIO's statutory authority to monitor affordability for Affected Persons, FIO confirms the adoption and use of the Affordability Index. FIO recognizes that an index does not address affordability for any individual consumer but that it is a tool that will help monitor over time the changes and trends in automobile liability insurance premiums for Affected Persons as a group. Consistent with its statutory authority, FIO will limit the application of the Affordability Index and evaluate affordability only for Affected Persons. ii. Average Premium FIO stated in the July 2015 Notice that an affordability index may be calculated using the average annual written personal automobile liability premium.\48\ The July 2015 Notice sought comment on the appropriate method of calculating the average premium and the types of policies included in the calculation. --------------------------------------------------------------------------- \48\ July 2015 Notice, supra note 3, at 38,279. --------------------------------------------------------------------------- Three commenters specifically addressed the appropriateness of using the average premium price at all. The American Insurance Association (AIA) commented that average premiums should not be used to calculate an affordability index because doing so would reflect a population, even among Affected Persons, who choose to buy higher limits, adjust their deductible, or have multiple household drivers or vehicles on a single policy.\49\ In contrast, the American Academy of Actuaries (AAA) took the opposite view and commented ``that an appropriate measure of affordability of automobile insurance would be to compare average premium to average income.'' \50\ --------------------------------------------------------------------------- \49\ AIA, at 3 (Aug. 31, 2015), available at http://www.regulations.gov/#!documentDetail;D=TREAS-DO-2015-0005-0009 (AIA Comment). \50\ AAA, at 1 (Aug. 31, 2015), available at http://www.regulations.gov/#!documentDetail;D=TREAS-DO-2015-0005-0012 (AAA Comment). --------------------------------------------------------------------------- In its comment, the PIA recommended using the median rather than the average, as it is a more precise measure because ``[e]ven when limiting consideration to personal auto[mobile] liability in the standard market, consumer choices and insurance practices will skew average results in certain areas of the country.'' \51\ Although a median might be a more precise measure than an average, it would require collection of data that is not readily available and that therefore might place an undue burden on the collecting agencies, insurers, and others. --------------------------------------------------------------------------- \51\ PIA Comment, supra note 36, at 3. --------------------------------------------------------------------------- After reviewing the comments, and taking into consideration the varying perspectives on whether to use the average premium cost, FIO has concluded that using an average premium price is appropriate to calculate the Affordability Index. FIO will use average premium price data for the purpose of calculating the Affordability Index because of the following factors: (1) Average premium data is more frequently collected; \52\ (2) additional conversations with industry participants have mitigated concerns of skewness in the premium distribution; and (3) using average premium data will reduce the reporting and computational burden on participating insurers and statistical agents. --------------------------------------------------------------------------- \52\ A recent study on auto insurance affordability similarly focused on average premiums because national and state insurance expenditure data was ``only available as an average.'' Patrick Schmid, ``Auto Insurance Affordability,'' Journal of Insurance Regulation, vol. 33, no. 9, at 4 & fn.5 (2014), available at http://www.naic.org/documents/prod_serv_jir_JIR-ZA-33-09-EL.pdf. --------------------------------------------------------------------------- In the July 2015 Notice, FIO proposed two ways to calculate average premium: (1) Average annual written premium for all insurers writing personal auto insurance or (2) average quoted premium for a sample of insurers. Allstate was the only industry commenter to specifically address the issue of using written or quoted premiums. In its comment, Allstate recommended ``using actual total premiums written'' because that information is collected by state insurance departments and the National Association of Insurance Commissioners (NAIC). It stated further that ``[t]he collection of quote information . . . would necessitate the development of `hypothetical' customers who may or may not be representative of the people purchasing insurance in a particular area.'' \53\ Consumer advocates objected to the use of written premium over quoted premium, expressing concerns that using the actual prices paid for coverage, i.e., written premiums, does not provide a good measure of affordability because some consumers will not purchase insurance upon receiving quotes that are too expensive.\54\ Accordingly, consumer advocates recommended that FIO analyze data to reflect the premiums actually offered or presented to, rather than the premiums paid by, Affected Persons.\55\ --------------------------------------------------------------------------- \53\ Allstate, at 6 (August 27, 2015), available at http://www.regulations.gov/#!documentDetail;D=TREAS-DO-2015-0005-0003 (Allstate Comment). \54\ See CFA Comment, supra note 37, at 6-7; NYRL Comment, supra note 37, at 5-6. \55\ Id. --------------------------------------------------------------------------- FIO will use written premium, not quoted premium, in this final working definition. One commenter supporting using quoted premium has previously acknowledged its drawbacks. In a September 2014 study, the Consumer Federation of America opined that collecting premium quotes from Web sites has several limitations such as (1) not all insurers' Web sites provide quotes; (2) a quote may be higher or lower than the actual price a consumer would pay depending on credit record; and, (3) because quotes must be collected manually, it is difficult to collect premium information for a large number of geographies or driver profiles.\56\ Although commenters make a reasonable argument for gauging affordability based on quoted premiums, the drawbacks identified in the 2014 study and by commenters dictate use of annual written premium, not annual quoted premium, in the calculation of the Affordability Index. --------------------------------------------------------------------------- \56\ Tom Feltner, Stephen Brobeck, & J. Robert Hunter, The High Price of Mandatory Auto Insurance for Lower Income Households: Premium Price Data for 50 Urban Regions, at 3-4 (Consumer Fed. of America Sept. 2014), available at http://www.consumerfed.org/pdfs/140929_highpriceofmandatoryautoinsurance_cfa.pdf. --------------------------------------------------------------------------- Commenters were divided on FIO's proposal to limit its analysis to only the premium for liability coverage and not consider comprehensive, collision or other costs associated with personal auto insurance. Comments from consumer advocates expressed concerns about this approach's exclusion of comprehensive and collision coverage costs from an affordability index calculation.\57\ Both CFA and NYRL commented that premiums for comprehensive and collision coverage should be included in calculating an [[Page 45377]] affordability index because ``a rising number of low- to moderate- income drivers have car loans that require additional insurance coverage.'' \58\ In addition, CFA noted that this coverage costs ``approximately the same amount as the basic liability policy offered by a company,'' \59\ while NYRL commented that the cost of comprehensive and collision coverage ``puts an additional burden on the driver who may make just enough to make the car payment'' \60\ and, therefore, should be included in calculation of an affordability index. The National Association of Mutual Insurance Companies (NAMIC) commented that limiting the scope of an affordability index to liability insurance would lead to data quality problems because state minimums vary and some states require personal injury protection (PIP).\61\ --------------------------------------------------------------------------- \57\ CFA Comment, supra note 37, at 3; NYRL Comment, supra note 37, at 3-4. \58\ NYRL Comment, supra note 37, at 4. See also CFA Comment, supra note 37, at 3. \59\ CFA Comment, supra note 37, at 3. \60\ NYRL Comment, supra note 37, at 4. \61\ See NAMIC, at 5 (August 31, 2015) available at http://www.regulations.gov/#!documentDetail;D=TREAS-DO-2015-0005-0007 (NAMIC Comment). --------------------------------------------------------------------------- Other commenters--AAA, Allstate, PIA, and PCI--submitted comments supporting FIO's view that an affordability index should measure only the cost of mandatory liability coverage. The AAA commented that the ``optional [c]omprehensive and [c]ollision coverage should not be included'' in an affordability index.\62\ Allstate commented that ``[i]nsurance expenditure should be adjusted to reflect the minimum coverage required; [because] it is likely that Affected Persons purchase lower coverage limits, which reduces the amount they spend on insurance relative to the average insurance consumer.'' \63\ PIA commented that FIO should consider ``only personal auto liability insurance in the standard market.'' \64\ PCI commented that only ``the mandatory personal auto liability '' coverage for bodily injury and property damage should be included because ``states generally require only the purchase of liability insurance as a condition of driving or owning a motor vehicle.'' \65\ As explained in the July 2015 Notice, because liability coverage (or financial responsibility limit) is the only requirement imposed by states as a condition of driving or owning an automobile, FIO concludes that liability coverage should be the basis for calculating the Affordability Index. Many variables affect consumers' decisions on the amount of collision and/or comprehensive coverage to purchase. For example, risk-averse consumers or consumers seeking asset protection may purchase the maximum amount of coverage available, while risk-tolerant consumers may purchase only the mandatory minimums. By including collision or comprehensive coverage in its calculation of the Affordability Index, FIO would introduce unnecessary confounding variables unrelated to affordability into an already complex analysis. For these reasons, FIO will limit the calculation of the Affordability Index solely to premiums for mandatory liability coverage. --------------------------------------------------------------------------- \62\ AAA Comment, supra note 52, at 1. \63\ Allstate Comment, supra note 55, at 2. \64\ PIA Comment, supra note 36, at 2. \65\ PCI Comment, supra note 35, at 2. --------------------------------------------------------------------------- iii. Market Scope Commenters were split on the issue of limiting the calculation of affordability to the standard market only. As explained by FIO in the July 2015 Notice, an affordability index may be calculated for the entire market for personal automobile liability insurance or a specific market within personal automobile insurance.\66\ FIO explained that generally, annual premiums for personal automobile insurance are highest in the residual market, followed by the non-standard market, and then the standard market.\67\ FIO proposed to use only premiums in the standard market in order to diminish the impact of the higher annual premiums charged to the highest risk drivers in the other markets. --------------------------------------------------------------------------- \66\ July 2015 Notice, supra note 3, at 38,280. \67\ Id. --------------------------------------------------------------------------- Consumer advocates opposed the use of only data from the standard market and, rather, proposed including data from the non-standard and residual market as well.\68\ CFA commented that residual and non- standard market should be included in an affordability index ``because both of those markets serve, to some extent, good drivers who are Affected Person.'' \69\ NYRL commented that data should include residual market and non-standard premiums because ``good drivers are being placed in non-standard markets as a result of socioeconomic factors.'' \70\ Other commenters supported FIO using only standard market data. The AAA and PIA stated that only data from the standard market should be considered in calculating an affordability index.\71\ The PIA commented that using data in the standard market will ``diminish the impact of annual premiums charged to high-risk drivers as well as state laws and other requirements.'' \72\ --------------------------------------------------------------------------- \68\ CFA Comment, supra note 37, at 5-6; NYRL Comment, supra note 37, at 4. \69\ CFA Comment, supra note 37, at 5. \70\ NYRL Comment, supra note 37, at 4. \71\ AAA Comment, supra note 52, at 1; PIA Comment, supra note 36, at 2. \72\ PIA Comment, supra note 36, at 2. --------------------------------------------------------------------------- Notwithstanding the conflicting views, FIO notes that insurers generally use varying methodologies to rate policyholders who qualify for standard market premiums versus those who do not. For this reason, the exact size of the standard and the non-standard auto market is hard to calculate. The potential impact of excluding premium data for the non-standard market--estimated at 30 to 40 percent of the total private passenger auto insurance market \73\--when calculating the Affordability Index is significant. Accordingly, FIO will use data for both the standard and non-standard market to calculate the Affordability Index. As a result, FIO will capture relevant data, while addressing the concerns of consumer advocates that ``good drivers are being placed in non-standard markets as a result of socioeconomic factors.'' \74\ For present purposes, FIO will refer to the standard and non-standard market collectively as the ``voluntary market,'' to distinguish it from the residual market and state assigned risk pools. --------------------------------------------------------------------------- \73\ Andrea Wells, ``Nonstandard Auto Insurance Market Is Not For Everybody,'' Insurance Journal (April 13, 2015), available at http://www.insurancejournal.com/news/national/2015/04/13/364065.htm. \74\ NYRL Comment, supra note 37, at 4. --------------------------------------------------------------------------- iv. Affected Persons FIO has revised its definition of Affected Persons. In the July 2015 Notice, FIO adopted the term ``Affected Persons'' to collectively refer to ``traditionally underserved communities and consumers, minorities, and low- and moderate-income persons.'' FIO then proposed an approach to account for such persons in its working definition. First, FIO proposed to use ``urban area'' as the proxy for defining ``traditionally underserved communities and consumers,'' following the Census Bureau definition of urban area, ``as densely developed territory that encompasses at least 2,500 people of which at least 1,500 reside outside institutional group quarters.'' \75\ Second, adapting the FDIC definitions for low-income and moderate-income, FIO proposed, for purposes of its definition of LMI, to consider individuals living in areas where the annual income of the geographic area is less than 80 percent of the median household income of a [[Page 45378]] metropolitan statistical area or state.\76\ In explaining its decision, FIO noted that the FDIC defines low-income as ``individuals and geographies having a median family income less than 50 percent of the area median income'' and moderate income as ``individuals and geographies having a median family income of at least 50 percent and less than 80 percent of the area median income.'' \77\ Third, FIO noted that ``minorit[y]'' is defined by law as ``Black American, Native American, Hispanic American, or Asian American,'' which is the definition incorporated by reference in the Wall Street Reform Act.\78\ In addition, FIO proposed to use ZIP Codes in which the minority population exceeded 50 percent as the standard for majority-minority geographic areas.\79\ --------------------------------------------------------------------------- \75\ July 2015 Notice, supra note 3, at 38,280; Census Bureau, ``2010 Census Urban Area FAQs,'' available at https://www.census.gov/geo/reference/ua/uafaq.html. \76\ Id. \77\ Id. (citing FDIC, ``Community Reinvestment Act (CRA) Performance Ratings,'' available at https://www2.fdic.gov/crapes/peterms.asp). \78\ Id. (citing 31 U.S.C. 313(c)(1)(B) (incorporating by reference the definition established in 12 U.S.C. 1811 note)). \79\ Id. --------------------------------------------------------------------------- FIO received several comments in response to the July 2015 Notice regarding its proposed definition and parameters to account for Affected Persons. One comment encouraged FIO to define Affected Persons broadly in order to include communities that are marginalized because of factors beyond income.\80\ Two commenters opined that using geographic areas to identify Affected Persons may be the most practical way to approach the affordability analysis, with one of those respondents suggesting the use of ZIP Codes as the measurement of geographic area.\81\ Another commenter cautioned that the use of ``urban areas'' as a proxy for ``traditionally underserved communities'' would create a statistical category covering over 80 percent of the U.S. population, as over 250 million people live in ``urban areas.'' \82\ Another commenter stated that the proposed definition for Affected Persons would be unmanageable because it would combine populations (LMI and minorities) with multiple and overlapping geographic units (i.e., ZIP Codes and Census Bureau ``urban areas'').\83\ Relatedly, a letter by the Ranking Member of the U.S. House of Representatives Financial Services Committee, Congresswoman Maxine Waters, to FIO Director Michael McRaith, cautioned against the use of ``urban areas'' as a proxy for ``traditionally underserved communities'' because that term would exclude rural areas and could unduly skew data because of the presence of high-income households in high-density urban areas.\84\ Finally, a commenter warned that many states prohibit insurers from collecting data on income, race, religion, national origin, sex, familial status, or disability; insurers do not want to collect such data; and any requirement that insurers collect such data could create conflicting regulatory requirements.\85\ --------------------------------------------------------------------------- \80\ NYRL Comment, supra note 37, at 1. \81\ Allstate Comment, supra note 55, at 6; CFA Comment, supra note 37, at 4-5. \82\ FSR Comment, supra note 34, at 8. \83\ IRC Comment, supra note 40, at 2. \84\ Ranking Member Waters letter to Director McRaith, re FIO's efforts to monitor the availability and affordability of automobile insurance (November 19, 2015) (Waters' Letter). \85\ AIA Comment, supra note 51, at 3. --------------------------------------------------------------------------- FIO agrees with the commenters who suggested that its earlier proposal to use the Census Bureau-defined term ``urban areas'' as a proxy for identifying ``traditionally underserved communities (including rural areas) and consumers'' would fail to adequately capture and account for Affected Persons. Using ``urban areas'' as a proxy raises two significant concerns. First, the proposed proxy is over-inclusive because ``urban areas'' account for over 80 percent of the U.S. population.\86\ This level of coverage could capture numerous communities and consumers that would not meet any reasonable definition of traditionally underserved. Second, the proxy would exclude rural communities. The CFA commented that FIO could attempt to use ZIP Codes with high levels of uninsured motorists as a proxy to identify ``underserved'' areas, but conceded that even that data is not easily obtained, and noted that ``LMI ZIP Codes and majority minority ZIP Codes'' sufficiently capture those communities that would be properly considered ``underserved'' in this context.\87\ --------------------------------------------------------------------------- \86\ FSR Comment, supra note 34, at 8-9 & fn.22. \87\ CFA Comment, supra note 37, at 5. --------------------------------------------------------------------------- The Wall Street Reform Act does not provide a definition of ``traditionally underserved communities and consumers'' or a methodology for identifying such communities or consumers. Likewise, the legislative history of the statute does not establish a clear or specific Congressional intent as to the meaning of the phrase.\88\ Given the lack of a statutory definition and an acceptable working definition and parameters for ``traditionally underserved communities and consumers,'' FIO reexamined the approach to the definition and parameters for Affected Persons as a whole and agrees with the observations of CFA about the challenges of defining ``underserved'' areas. Accordingly, in lieu of using urban areas as a proxy for identifying underserved communities as previously proposed, FIO adopts the approach recommend by CFA and instead will use ``LMI ZIP Codes and majority minority ZIP Codes'' \89\ to capture those communities that would be considered underserved. --------------------------------------------------------------------------- \88\ FIO notes that the CFPB has adopted a definition for ``underserved.'' According to the CFPB regulation at 12 CFR 1026.35(b)(2)(iv)(B): A county is ``underserved'' during a calendar year if, according to Home Mortgage Disclosure Act data for the preceding calendar year, no more than two creditors extended covered transactions, as defined in Sec. 1026.43(b)(1), secured by a first lien, 5 or more times in the county. FIO has not adopted this approach because it is not well suited to insurance. \89\ CFA Comment, supra note 37, at 5. --------------------------------------------------------------------------- Based on stakeholder comments and its own research, FIO affirms the validity of the definition and parameters it adopted for identifying minority and LMI populations subject to the refinements discussed below. FIO will use the definition of minority set by law as ``Black American, Native American, Hispanic American, or Asian American.'' FIO has revised its adaptation of the FDIC methodology it proposed in the July 2015 Notice for identifying LMI persons. Following more precisely the practice of the FDIC, FIO will use median family income for designating LMI geographies instead of using median household income.\90\ FIO makes this change for two reasons: (1) Aggregated non- MSA \91\ median household income data is not readily available, and (2) existing regulatory frameworks tend to use median family income data instead of median household income when analyzing geographic areas. For example, the Federal Financial Institutions Examination Council produces annual data tables by MSA, metropolitan division (MD), and non-MSA using family income for the Community Reinvestment Act (CRA) examination of banks.\92\ As noted above, the FDIC uses median family income to designate low- and moderate-income individuals and geographies. The lack of aggregated household income data for non-MSA areas would pose a challenge for FIO to readily identify rural LMI areas. Therefore, FIO will use median family [[Page 45379]] income and not median household income to identify LMI geographies. --------------------------------------------------------------------------- \90\ This definition is based on the definition used in the Community Reinvestment Act examination and accepted and implemented by the Community Development Block Grant program, FDIC, Federal Reserve Board of Governors, Office of the Comptroller of the Currency, and the Federal Financial Institutions Examination Council. \91\ An ``MSA'' is a metropolitan statistical area as defined by the Director of the Office of Management and Budget. \92\ See, e.g., 12 CFR part 345, 12 CFR 228.12, and 12 CFR part 25. --------------------------------------------------------------------------- Accordingly, FIO will adopt the revised definition and parameters in its final working definition to account for Affected Persons as (1) persons living in majority-minority ZIP Codes, and (2) persons living in majority-LMI ZIP Codes.\93\ FIO believes that this approach results in a more workable framework while still reflecting the intent of the statute to monitor ``traditionally underserved communities and consumers.'' --------------------------------------------------------------------------- \93\ This definition will capture Affected Persons in both rural and urban areas. --------------------------------------------------------------------------- The Affordability Index is calculated as premiums divided by income. In essence, it measures insurance expenditure expressed as percentage relative to income. While FIO's authority is to monitor the availability and affordability of insurance for Affected Persons, an automobile insurance premium study is most useful if linked to geography. This fact supports using majority-minority ZIP Codes and majority-LMI ZIP Codes as parameters to account for Affected Persons. FIO does not have ready access to individual insurance premium experiences and corresponding personal demographics data and, as commenters have pointed out, it is unlikely that insurers and statistical agents have this demographic data. Consistent with the reasoning in the July 2015 Notice, aggregate geographic areas can act as useful proxies to account for Affected Persons. In lieu of obtaining individualized data that may not be maintained by insurers, ZIP Code provides the closest proxy for observing the experiences of Affected Persons within discrete measurable geographic areas for which data is collected and available.\94\ Insurers acquire data to set premiums and, in so doing, capture policyholders' addresses, including ZIP Codes, for account billing, marketing, and other purposes. Accordingly, FIO will use ZIP Codes to define the geographic areas for calculating the Affordability Index because ZIP Code premium data is available and has (1) greater capacity to show variance across populations and geographic regions than counties and states; and (2) lower margins of errors than demographic data based on census tract. Incorporating these attributes of ZIP Codes has a positive impact on FIO's Affordability Index by providing a more detailed view of Affected Persons' automobile insurance experience than using state and county level data, and a more precise view than using census tract level data. This approach is consistent with prior reports studying the affordability of U.S. automobile insurance which analyzed ZIP Code-driven geographic areas.\95\ Focusing analysis on a ZIP Code basis allows areas with high concentrations of Affected Persons to be specifically evaluated, thereby facilitating understanding of the insurance experiences of Affected Persons across the United States and compensating for the lack of individualized data about Affected Persons. --------------------------------------------------------------------------- \94\ FIO considered but decided not to use census tract data for the Affordability Index because insurers do not sort data by census tract, but instead by ZIP Codes. \95\ See Tom Feltner and Douglas Heller, ``High Price of Mandatory Auto Insurance in Predominantly African American Communities'' (Consumer Federation of America November 2015), available at http://consumerfed.org/wp-content/uploads/2015/11/151118_insuranceinpredominantlyafricanamericancommunities_CFA.pdf?source=externa; Stephen Brobeck and J. Robert Hunter,, ``Lower-income Households and the Auto Insurance Marketplace: Challenges and Opportunities'' (Consumer Federation of America, January 2012), available at http://consumerfed.org/reports/cfa-report-title-forthcoming/; NAIC, ``NAIC Insurance Availability and Affordability Task Force Final Report'' (January 1998), available at http://www.naic.org/documents/prod_serv_special_iaa_pb.pdf. --------------------------------------------------------------------------- In its July 2015 Notice, FIO proposed defining majority-minority geographic areas as those ZIP Codes in which the minority population exceeds 50 percent.\96\ Although FIO proposed that, for purposes of its working definition, it would define LMI individuals as those living in areas where the annual income of the geographic area is less than 80 percent of the median household income of a metropolitan statistical area or state,\97\ it did not provide the parameters for establishing the geographic areas for LMIs. As explained above, using a ZIP Code as a unit of analysis allows FIO to match demographic data for Affected Persons to aggregated data already collected by insurers, including ZIP Code-level data regarding average premiums. Additionally, income data is readily available at the ZIP Code level. Both the CFA and NYRL commented that ZIP Codes should be considered in the identification of Affected Persons. The CFA commented that FIO should refine the proposed definition of ``LMI people'' to focus geographic areas ``explicitly on LMI `ZIP codes.' '' \98\ The NYRL commented that ``the focus should be placed on zip codes identified as populated by low- to moderate-income individuals and zip codes with predominantly non-white populations,'' resulting in more targeted areas for FIO to ``develop a more accurate evaluation of accessibility and affordability of personal auto insurance.'' \99\ Based on the views expressed by commenters and stakeholders, and FIO's own analysis, FIO will use majority-minority ZIP Codes and majority-LMI ZIP Codes as parameters to ensure that the Affordability Index more accurately captures the experiences of Affected Persons. --------------------------------------------------------------------------- \96\ July 2015 Notice, supra note 3, at 38,280. \97\ Id. \98\ CFA Comment, supra note 37, at 4. \99\ NYRL Comment, supra note 37, at 4. --------------------------------------------------------------------------- The use of ``majority-LMI ZIP Codes'' in the final working definition adds specificity to the proposed definition's use of ``specified geographic area'' as the parameter for reflecting LMI persons in the calculations. For purposes of the final working definition, majority-minority ZIP Codes are those in which the minority population exceeds 50 percent, consistent with the proposed definition, and majority-LMI ZIP Codes are those in which LMI persons exceed 50 percent of the population. FIO is mindful of the IRC's comment that this approach could still result in an overlap of the categories of Affected Persons within the same ZIP Code. Thus, a majority-minority ZIP Code may also be a majority-LMI ZIP Code. FIO will keep this potential complication in mind when identifying majority-minority and majority-LMI ZIP Codes. B. Definition of Affordability and Application of the Affordability Index In developing its definition of affordability, FIO considered three definitions submitted by commenters in response to the April 2014 Notice, and ultimately proposed adopting the definition of ``affordability'' derived from a dictionary and submitted by one commenter: ``being within the financial means of most people.'' \100\ FIO explained that this ``common sense definition may be used to develop `a practical and effective approach to monitoring access to affordable personal automobile insurance,' '' and proposed that it will presume automobile liability insurance is affordable for Affected Persons if the affordability index is less than or equal to 2 percent of household income.\101\ --------------------------------------------------------------------------- \100\ July 2015 Notice, supra note 3, at 38,279 & fn. 29 (citing PCI, at 1 (June 9, 2014), available at http://www.regulations.gov/#!documentDetail;D=TREAS-DO-2014-0001-0020). \101\ July 2015 Notice, supra note 3, at 38,280. --------------------------------------------------------------------------- The FSR commented that generally the proposed definition is ``an acceptable construct'' but ``strongly disagree[d] that it can be reconciled with the factors and criteria delineated under the proposed affordability index,'' and that ``it is impossible to address the [[Page 45380]] issue of affordability without openly referencing the concepts of consumer choice.'' \102\ The AIA commented that the ``proposed definition is vague and ambiguous, and does not consider variations among states in required liability limits, . . . mandated personal injury protection (PIP), or claim and litigation environments'' and ``suggest[ed] that a reasonable definition . . . is one that recognizes relativity and consumer choice.'' \103\ NAMIC commented that although it understood ``the difficulty in attempting to create such a definition,'' it found the proposed definition of affordable confusing because of ``the juxtaposition of `most people' and `Affected Persons,' '' and that ``[i]t is not clear what `most people' means'' in the context of the definition.\104\ --------------------------------------------------------------------------- \102\ FSR Comment, supra note 34, at 4. \103\ AIA Comment, supra note 51, at 2. \104\ NAMIC Comment, supra note 63, at 2. --------------------------------------------------------------------------- CFA commented that affordability ``must be precisely defined rather than defined loosely as `within the financial means of most people,' '' and ``that two percent of the household income of an Affected Person is the appropriate standard.'' \105\ Further, CFA stated that assessment of affordability should be relative to the purchasing capacity of low- and moderate-income persons, because ``it is essential that affordability is gauged against the ability of low-wealth drivers to purchase insurance.'' \106\ --------------------------------------------------------------------------- \105\ CFA Comment, supra note 37, at 1. \106\ Id. --------------------------------------------------------------------------- As these varying comments from the insurance industry and consumer advocates illustrate, there is not one generally acceptable method or definition of affordability. Rather, there are differing views, approaches, and methodology. Accordingly, FIO has considered all the comments provided, and adopts an objective standard as its first formal measure and definition of affordability of automobile insurance for Affected Persons. For the reasons explained in the July 2015 Notice, and reiterated below, FIO presumes that personal automobile liability insurance is affordable if the Affordability Index is less than or equal to 2 percent in the areas used to account for Affected Persons. In explaining its proposal, FIO cited a study of the affordability of personal automobile insurance that found the national average insurance expenditures divided by national median income has been below two percent since 1995.\107\ FIO also cited a report that found, based on 2013 data, that consumers spent about 1.6 percent of average income (after taxes) on auto insurance.\108\ --------------------------------------------------------------------------- \107\ July 2015 Notice, supra note 3, at 38,280 (citing IRC, ``Auto Insurance Affordability,'' (November 2013), at 7). \108\ Id. at 38,280. See also BLS, Current Employment Statistics, supra note 19. --------------------------------------------------------------------------- In comments to the July 2015 Notice, consumer advocates generally favored the 2 percent benchmark, while insurers and industry representatives opposed the adoption of a fixed numerical value as a measure for affordability. Both the CFA and NYRL stated that 2 percent is consistent with previous analysis of basic household budgets.\109\ On the other hand, insurers and others generally opposed adopting the 2 percent metric. The AIA stated that the 2 percent is artificial.\110\ The AAA stated that the 2 percent is only a single measure, and using it alone may be ill-advised because it could over simplify the complex task of defining ``affordability.'' \111\ Allstate expressed concerns with the 2 percent, stating that FIO should monitor actual cost rather than make subjective assessments using a threshold.\112\ The FSR indicated that 2 percent is a misrepresentation of the term ``affordable'' and is unjustifiably low; and that it could create a perception that automobile insurance coverage is an inexpensive service whose price can easily be altered to meet particular needs and situation of each particular consumer.\113\ The IRC said the 2 percent is arbitrary in that an external reference or standard does not exist to support it; \114\ while NAMIC stated that a reasonable basis for a 2 percent standard does not exist, and that it raises the question of how much the expenditure may deviate from the specified percentage before automobile liability insurance is deemed ``unaffordable.'' \115\ The PIA said that relying on a metric to define affordability in terms of a percentage could lead to the desire to ``fix'' the problem by some kind of a subsidy; \116\ and the PCI said the 2 percent is weighted heavily towards the higher income groups because LMIs, by definition, will spend a higher percentage of their income on automobile insurance as would be the case for other necessities.\117\ --------------------------------------------------------------------------- \109\ CFA Comment, supra note 37, at 3; NYRL Comment, supra note 37, at 3. \110\ AIA Comment, supra note 51, at 3. \111\ AAA Comment, supra note 52, at 2. \112\ Allstate Comment, supra note 55, at 2. \113\ FSR Comment, supra note 34, at 5-6. \114\ IRC Comment, supra note 40, at 2. \115\ NAMIC Comment, supra note 63, at 3-4. \116\ PIA Comment, supra note 36, at 2. \117\ PCI Comment, supra note 35, at 2. --------------------------------------------------------------------------- FIO has carefully considered the views expressed by the commenters on this subject, including those who oppose using the 2 percent measure. Nevertheless, for purposes of monitoring the affordability of personal auto liability insurance, FIO will presume that insurance is affordable if the Affordability Index is less than or equal to the 2 percent benchmark. Based on the final working definition, the Affordability Index is the average annual premium divided by median household income.\118\ --------------------------------------------------------------------------- \118\ More specifically, as described above, the Affordability Index will be calculated using the average annual written premium for personal automobile liability insurance in the voluntary market, divided by median household income for areas which are majority- minority or majority-LMI, i.e., Affected Persons exceed 50% of the population. --------------------------------------------------------------------------- In adopting this threshold, FIO considered that the overall cost of living varies considerably across the nation and that variation is reflected in part by the variation in household income. By basing the threshold on a specific percentage of household income, the measure will adjust, at least in part, for the variations in the overall cost of living and income levels from region to region. Using household income at the ZIP Code level is superior to other approaches because it (1) applies to more of the population than family income, (2) lessens the effect of outliers that could skew averages, (3) avoids the complexity of residual income approaches that could be biased due to high cost areas, and (4) is a widely accepted and used component to analyze affordability of other consumer products.\119\ --------------------------------------------------------------------------- \119\ See, e.g., ``America's Rental Housing: Evolving Markets and Needs,'' (Joint Center for Housing Studies of Harvard University (2013), available at http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/jchs_americas_rental_housing_2013_1_0.pdf; and, New York City Rent Guidelines Board, ``2015 Income and Affordability Study'' (April 2015), available at http://www.nycrgb.org/downloads/research/pdf_reports/ia15.pdf (using household income in rental housing affordability study). --------------------------------------------------------------------------- In settling on the 2 percent benchmark, FIO was most persuaded by the data in the Consumer Expenditure Survey, as produced by the Census Bureau and the BLS, which showed that the average household spent 2 percent of its income on automobile insurance.\120\ FIO notes that other key consumer goods and services already have an established affordability threshold that is expressed as a percentage of household income. For example, the affordability threshold for housing is 30 percent, healthcare is 9.56 [[Page 45381]] percent,\121\ and residential running water is 2 percent.\122\ --------------------------------------------------------------------------- \120\ BLS Consumer Expenditure Survey, ``Table 1110. Deciles of income before taxes: Annual expenditure means, shares, standard errors, and coefficients of variation'' (2014), available at http://www.bls.gov/cex/2014/combined/decile.pdf. \121\ Shared Responsibility for Employers Regarding Health Coverage, 79 FR 8544 (Feb. 12, 2014), available at https://www.thefederalregister.org/fdsys/pkg/FR-2014-02-12/pdf/2014-03082.pdf; 26 CFR 601.105, available at https://www.irs.gov/pub/irs-drop/rp-14-62.pdf. \122\ The cost of water/wastewater is considered unaffordable when it exceeds 2% of median household income. See U.S. Environmental Protection Agency, Memorandum re: Financial Capability Assessment Framework for Municipal Clean Water Act Requirements (Nov. 24, 2014), available at http://www.epa.gov/sites/production/files/2015-10/documents/municipal_fca_framework.pdf. --------------------------------------------------------------------------- Therefore, FIO adopts a 2 percent Affordability Index as a reasonable empirical benchmark for monitoring affordability and for the study to compare the cost of automobile insurance for Affected Persons. FIO acknowledges that the Affordability Index does not account for all circumstances which may be relevant to an individual consumer's cost of personal automobile insurance. Affordability for any individual consumer can be assessed accurately only within the context of that consumer's circumstances. C. Data Sources In the July 2015 Notice, FIO specifically requested input on how to best obtain appropriate data to monitor effectively the affordability of personal automobile insurance for Affected Persons. After considering stakeholder comments and potential information services, FIO intends to collect and analyze data received and aggregated by statistical agents. In addition, FIO will use data publicly available through the Census Bureau.\123\ In response to FIO's request, consumer advocate commenters suggested that FIO issue a data call to the 100 largest insurers in each state in order to obtain vehicle data and to reflect the premiums actually offered to Affected Persons.\124\ --------------------------------------------------------------------------- \123\ See Census Bureau, ``American Fact Finder,'' available at http://factfinder.census.gov/. \124\ CFA Comment, supra note 37, at 6; NYRL Comment, supra note 37, at 5-6. --------------------------------------------------------------------------- Contrary to comments from consumer advocates and the views expressed by Ranking Member Waters,\125\ industry stakeholder comments objected to FIO issuing any data calls or other mandatory collections. Many argued that FIO could obtain information it needed from existing sources. The AIA commented that FIO should consult with the Automobile Insurance Plan Service Office (AIPSO) for data,\126\ while the AAA commented that FIO should use data available from statistical agents such as the Independent Statistical Services (ISS), Insurance Services Office (ISO), and the National Institute of Statistical Sciences (NISS). Allstate commented that FIO should use data available from the NAIC, the Insurance Information Institute (III), and IRC.\127\ The FSR expressed concerns about the substance, workability, cost, and administrative burden of a data call.\128\ The IRC commented that FIO should conduct an analysis of existing data before initiating research requiring new and costly data reporting and collection efforts.\129\ NAMIC, IRC and FSR's comments averred that FIO should first analyze and report existing studies and other data already available.\130\ In addition, NAMIC's commented that the term ``monitor'' should not be interpreted as authority for FIO to collect data directly from insurers.\131\ Finally, PCI stated that FIO should use BLS and Census Bureau data, and if FIO were to issue a data call, then it should rely upon third parties--statistical agents like ISO, ISS, and NISS--to aggregate that data.\132\ --------------------------------------------------------------------------- \125\ Waters' Letter, supra note 86. \126\ AIA Comment, supra note 51, at 5. \127\ Allstate Comment, supra note 52, at 2. \128\ FSR Comment, supra note 34, at 3. \129\ IRC Comment, supra note 40, at 3. \130\ NAMIC Comment, supra note 63, at 4-5; IRC Comment, supra note 40, at 3; and FSR Comment, supra note 34, at 3-4, 10-11. \131\ NAMIC Comment, supra note 63, at 5. \132\ See PCI Comment, supra note 35, at 5. --------------------------------------------------------------------------- FIO has reviewed and evaluated the comments received from stakeholders on whether to collect data directly from industry to support this work, and respects concerns about duplicative information gathering. FIO intends to avoid unnecessary burdens or expenses on stakeholders. FIO will exercise all reasonable efforts to use existing available information. Accordingly, at this time, FIO will not collect data directly from insurers through a data call as proposed in the July 2015 Notice. For its initial affordability study, FIO will use data currently available from the Census Bureau,\133\ statistical agents, and certain states. In this regard, 20 states require insurers to report ZIP Code- level automobile premium data to one of three statistical agents (ISO, ISS, and NISS) who collect and aggregate this data. --------------------------------------------------------------------------- \133\ See Census Bureau, ``American Fact Finder,'' available at http://factfinder.census.gov/. --------------------------------------------------------------------------- For purpose of its next study in 2017, FIO will request data from insurers who have a statutory surplus greater than $500 million as of December 31, 2015, and who annually collect more than $500 million of premium for personal automobile insurance. For 2017, FIO will request that large insurers who do not already report ZIP Code-level premium data voluntarily provide that data to the statistical agents with which the insurers typically work. FIO will ask that insurers covered by this request provide the statistical agents the following information: (i) ZIP Code-level premium data, (ii) for liability coverage at the financial responsibility limit, (iii) for the voluntary market. In combination, the data sources described above are expected to provide sufficient data to support the objective analysis necessary for FIO to monitor the affordability of personal auto insurance for Affected Persons. If, however, FIO receives incomplete data, or if insurers or statistical agents are not responsive to this request, FIO may collect information directly from those insurers in the future. Going forward, FIO will rely upon the methodology and the data described above to calculate the Affordability Index it will use to monitor the affordability of automobile insurance premiums in majority- minority or majority-LMI ZIP Codes. FIO will publicly report its findings annually and note, among other things, the trend of the Affordability Index relative to each of the analyzed ZIP Codes. Michael T. McRaith, Director, Federal Insurance Office. [FR Doc. 2016-16536 Filed 7-12-16; 8:45 am] BILLING CODE 4810-25-P
![45372 Federal Register / Vol. 81, No. 134 / Wednesday, July 13, 2016 / Notices
Revenue Service, Room 6129, 1111 (b) the accuracy of the agency’s estimate Service ZIP Codes (ZIP Codes)
Constitution Avenue NW., Washington, of the burden of the collection of identified as being majority-minority or
DC 20224, or through the internet at information; (c) ways to enhance the majority-LMI. FIO will presume that
Allan.M.Hopkins@irs.gov. quality, utility, and clarity of the personal automobile liability insurance
SUPPLEMENTARY INFORMATION: information to be collected; (d) ways to is affordable for Affected Persons if the
Title: Nonrecognition Exchanges minimize the burden of the collection of Affordability Index is less than or equal
Under Section 897. information on respondents, including to 2 percent.
OMB Number: 1545–1660. through the use of automated collection To undertake the study of the
Notice Number: Notice 99–43. techniques or other forms of information affordability of automobile insurance for
Abstract: Notice 99–43 announces technology; and (e) estimates of capital Affected Persons, FIO will collect and
modification of the current rules under or start-up costs and costs of operation, analyze premium data received and
Temporary Regulation section 1.897– maintenance, and purchase of services aggregated by statistical agents. In
6T(a)(1) regarding transfers, exchanges to provide information. addition, FIO will use data publicly
and other dispositions of U.S. real Approved: July 7, 2016. available through the U.S. Census
property interests in nonrecognition Bureau. In combination, these data
Allan Hopkins,
transactions occurring after June 18, sources should facilitate analysis
Tax Analyst.
1980. The notice provides that, contrary necessary for FIO to monitor the
[FR Doc. 2016–16555 Filed 7–12–16; 8:45 am] affordability of personal auto insurance
to section 1.897–6T(a)(1), a foreign BILLING CODE 4830–01–P for Affected Persons. FIO will report its
taxpayer will not recognize a gain under
findings annually, and note, among
Code 897(e) for an exchange described
other things, the trend of the
in Code section 368(a)(1)(E) or (F), DEPARTMENT OF THE TREASURY Affordability Index relative to each of
provided the taxpayer receives
Monitoring Availability and the ZIP Codes analyzed.
substantially identical shares of the
same domestic corporation with the Affordability of Automobile Insurance FOR FURTHER INFORMATION CONTACT:
same divided rights, voting power, Lindy Gustafson, Federal Insurance
AGENCY: Federal Insurance Office, Office, 202–622–6245 (not a toll free
liquidation preferences, and Departmental Offices, Treasury.
convertability as the shares exchanged number).
ACTION: Notice; advising adoption of
without any additional rights or SUPPLEMENTARY INFORMATION:
methodology to monitor affordability of
features. I. Background
personal automobile insurance.
Current Actions: There are no changes
being made to the notice at this time. SUMMARY: The Federal Insurance Office Subtitle A of Title V of the Dodd-
Type of Review: Reinstatement of a (FIO) of the U.S. Department of the Frank Wall Street Reform and Consumer
previously approved collection. Treasury (Treasury) issues this notice Protection Act of 2010 (the Wall Street
Affected Public: Business or other for- pursuant to its authority to monitor the Reform Act) established FIO in Treasury
profit organizations, and individuals or extent to which traditionally and provides it with a number of
households. underserved communities and authorities, including the authority to
Estimated Number of Respondents: consumers, minorities, and low- and monitor the extent to which
100. moderate-income (LMI) persons have traditionally underserved communities
Estimated Time per Respondent: 2 access to affordable personal automobile and consumers, minorities, and low-
hours. insurance. In July 2015, FIO sought and moderate-income (LMI) persons
Estimated Total Annual Burden comments from stakeholders, including (collectively, Affected Persons) have
Hours: 200. state insurance regulators, consumer access to affordable insurance products
The following paragraph applies to all organizations, representatives of the regarding all lines of insurance, other
of the collections of information covered insurance industry, policyholders, than health insurance.1
In notices published in the Federal
by this notice: academics, and others regarding: FIO’s
Register by FIO in April 2014 (April
An agency may not conduct or proposed working definition of
2014 Notice) 2 and July 2015 (July 2015
sponsor, and a person is not required to ‘‘affordability’’ in relation to personal
Notice),3 FIO explained the reasons it is
respond to, a collection of information automobile insurance; the key factors
monitoring the availability and
unless the collection of information FIO should use to calculate an
affordability of personal automobile
displays a valid OMB control number. affordability index for Affected Persons
liability insurance for Affected Persons.
Books or records relating to a collection (e.g., premium, income, and other They are:
of information must be retained as long metrics); and how best to obtain 1. Nearly all jurisdictions of the
as their contents may become material appropriate data to monitor effectively United States generally require a driver
in the administration of any internal the affordability of personal automobile or owner of a motor vehicle to maintain
revenue law. Generally, tax returns and insurance for Affected Persons. After automobile liability insurance or
tax return information are confidential, carefully considering all the comments financial security that may be satisfied
as required by 26 U.S.C. 6103. received in response to this and a by automobile liability insurance and
Request for Comments: Comments previous solicitation, in conjunction that is applicable at the time of an
submitted in response to this notice will with additional research and accident, while operating a motor
be summarized and/or included in the consultation, FIO has adopted a method vehicle, or at the time of registering a
request for OMB approval. All to measure the affordability of
jstallworth on DSK7TPTVN1PROD with NOTICES
motor vehicle;
comments will become a matter of automobile insurance for Affected
public record. Comments are invited on: Persons: FIO will calculate its 1 31U.S.C. 313(c)(1)(B).
(a) Whether the collection of Affordability Index by dividing the 2 Monitoring Availability and Affordability of
information is necessary for the proper average (or mean) annual written Auto Insurance, 79 FR 19,969 (Apr. 10, 2014) (April
2014 Notice).
performance of the functions of the personal automobile liability premium 3 Monitoring Availability and Affordability of
agency, including whether the in the voluntary market by the median Auto Insurance, 80 FR 38,277 (Jul. 2, 2015) (July
information shall have practical utility; household income for U.S. Postal 2015 Notice).
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2. On a nationwide basis, the for Affected Persons in the standard market. comprehensive insurance, collision
percentage of uninsured motorists was Personal auto[mobile] liability insurance is insurance, uninsured motorist
approximately 14 percent between 2002 presumed to be affordable if, with respect to insurance, and underinsured motorist
and 2009, before decreasing to 12.3 household income, the affordability index
insurance; or more narrow criteria, such
does not exceed two percent for Affected
percent in 2010, 12.2 percent in 2011, Persons in urban areas, for LMI persons as the average premium for personal
and 12.6 percent in 2012; within a specific geographic area (including automobile liability insurance for a
3. Owning an automobile gives low- rural areas), or for all individuals in majority given year.13 FIO proposed to limit the
income commuters greater access to jobs minority geographic areas.7 calculation of an affordability index to
since public ‘‘transit only enables [low- the average annual personal automobile
income commuters] to reach less than i. The Definition of Affordability liability insurance premium for Affected
one-third of metro-wide jobs within 90 In developing its working definition Persons after considering comments to
minutes . . . while the automobile of affordability, FIO considered three the April 2014 Notice. FIO chose this
enables them to reach all jobs in the 51 definitions submitted by commenters on approach because states generally
largest metropolitan areas within 60 the April 2014 Notice and ultimately require the purchase of personal
minutes;’’ 4 and proposed adopting the definition of automobile liability insurance as a
4. Although some stakeholders have ‘‘affordability’’ derived from a condition of driving or owning a motor
asserted that automobile insurance has dictionary and submitted by one vehicle.14
become more affordable over time, commenter: ‘‘being within the financial FIO noted that the affordability of
representatives for consumers continue means of most people.’’ 8 FIO explained personal automobile insurance may be
to assert that automobile insurance has that this ‘‘common sense definition may calculated by an examination of the
become less affordable for Affected be used to develop ‘a practical and average premium calculated as either (1)
Persons. effective approach to monitoring access the total annual written premium for all
A. The April 2014 Notice to affordable personal auto[mobile] insurers writing personal automobile
insurance.’ ’’ 9 insurance divided by the total number
In the April 2014 Notice, FIO
of policies; or (2) the total annual
requested comments regarding, among ii. Use of an Affordability Index
premium quoted by a sample of insurers
other things: A reasonable and FIO observed that some federal writing personal automobile insurance
meaningful definition of affordability of agencies use an index to measure divided by the number of insurers in the
personal automobile insurance, and the affordability and provided examples. sample. FIO proposed to use one or both
metrics and data FIO should use to For instance, the U.S. Department of of these average premium metrics for
monitor the extent to which Affected Housing and Urban Development (HUD) annual premium depending on available
Persons have access to affordable has a publicly available location data sources.15
personal automobile insurance.5 affordability index that estimates the
percentage of a family’s income iv. Market Scope for an Affordability
B. The July 2015 Notice
dedicated to the combined cost of Index
In the July 2015 Notice, FIO sought
comments from the public on a housing and transportation in a given FIO explained that an affordability
framework for measuring the location.10 Additionally, the Consumer index may be calculated for the entire
affordability of automobile insurance for Financial Protection Bureau (CFPB) has market for personal automobile liability
Affected Persons. Based on comments a definition of ‘‘qualified mortgage’’ insurance or a specific market within
submitted in response to the April 2014 based, in part, on the ratio of the personal automobile insurance because,
Notice, FIO proposed a working consumer’s total monthly debt to total historically, the automobile insurance
definition for affordable personal auto monthly income.11 Given the use of market has been divided into three
insurance based on an affordability indices by other federal agencies, and segments: (1) The standard market; (2)
index. To do that, the July 2015 Notice FIO’s statutory authority to monitor the non-standard market; and (3) the
set out in sequence: (1) A proposed affordability for Affected Persons, FIO residual market. FIO described the
definition of affordability; (2) a endorsed the concept of an affordability residual market as generally comprised
proposed definition and proposed index for personal automobile insurance of the highest risk drivers, i.e., drivers
calculation of an affordability index; (3) and proposed to calculate an who do not qualify for personal
a proposed calculation of average affordability index for personal automobile insurance offered in the
premium; (4) a proposed definition of automobile insurance for Affected standard market or non-standard
the market scope for an affordability Persons.12 market; the non-standard market as
index; and (5) a proposed definition of iii. Average Premium 13 Id.
Affected Persons.6 Based on its
FIO stated that an affordability index 14 Id. at 38,278. See also Insurance Information
consideration of those elements, FIO Institute, ‘‘Compulsory Auto/Uninsured Motorists’’
for Affected Persons may be derived
proposed the following working (June 2016) (listing automobile financial
from a broad set of criteria, such as the responsibility limits and enforcement by state),
definition of affordable personal auto
average premium for personal liability available at http://www.iii.org/issue-update/
insurance:
insurance, personal injury protection, compulsory-auto-uninsured-motorists. New
A personal auto[mobile] liability insurance Hampshire is the only state that does not require
policy is affordable if the annual premiums 7 Id. the purchase of personal automobile liability
at 38,280.
are within the financial means of most 8 Id.
insurance; however, drivers must be able to
at 38,279. demonstrate they are able to provide sufficient
jstallworth on DSK7TPTVN1PROD with NOTICES
people as measured by an affordability index 9 Id. (quoting Property and Casualty Insurers
funds to meet New Hampshire Motor Vehicle
Association of America, at 1 (June 9, 2014), Financial Responsibility Requirements in the event
4 Clifford Winston, ‘‘On the Performance of the available at http://www.regulations.gov/ of an ‘‘at-fault’’ accident. See State of New
U.S. Transportation System: Caution Ahead,’’ #!documentDetail;D=TREAS-DO-2014-0001-0020). Hampshire Insurance Department, ‘‘Your Guide to
Journal of Economic Literature, Vol. 51, No. 3 at 805 10 Id. at 38,279 & fn. 33 (citing HUD, ‘‘Location
Understanding Auto Insurance in the Granite
(2013) (citations omitted), available at https:// Affordability Portal,’’ available at http:// State,’’ at 1, available at http://www.nh.gov/
www.aeaweb.org/articles?id=10.1257/jel.51.3.773. www.locationaffordability.info/lai.aspx). insurance/consumers/documents/nh_auto_
5 April 2014 Notice, supra note 2, at 19,970. 11 12 CFR 1026.43(e)(2)(vi). guide.pdf.
6 July 2015 Notice, supra note 3. 12 July 2015 Notice, supra note 3, at 38,279. 15 July 2015 Notice, supra note 3, at 38,279.
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![45374 Federal Register / Vol. 81, No. 134 / Wednesday, July 13, 2016 / Notices
comprised of high risk drivers, such as affordability index is less than or equal annual income of the geographic area is
new drivers, drivers with moving to 2 percent of household income.20 less than 80 percent of the median
violations, drivers with a rare or household income of a metropolitan
v. Definition of Affected Persons
unusual motor vehicle, or drivers with statistical area or state.’’ 25
a high automobile insurance policy FIO is statutorily authorized to
FIO noted that the term ‘‘minorit[y]’’
cancellation or non-renewal rate; and monitor the extent to which
is defined by law as ‘‘Black American,
the standard market as comprised of all traditionally underserved communities
and consumers, minorities, and low- Native American, Hispanic American,
other drivers. FIO reported that
generally annual premiums for personal and moderate-income persons have or Asian American.’’ 26 It proposed to
automobile insurance are highest in the access to affordable insurance products. use ZIP Codes in which the minority
residual market, followed by the non- FIO adopted the term ‘‘Affected population exceeds 50 percent as the
standard market, and, finally, the Persons’’ to describe traditionally standard for majority-minority
standard market.16 Accordingly, FIO underserved communities and geographic areas.
proposed to limit the calculation of an consumers, minorities, and low- and vi. Data Source and Request for
affordability index for personal moderate-income (LMI) persons. Comments
automobile liability insurance to the FIO initially proposed to use ‘‘urban
standard market in order to diminish area,’’ as defined by the U.S. Census FIO concluded the July 2015 Notice
the impact of the annual premiums Bureau (Census Bureau), as a proxy for by describing the data needed to
charged to the highest risk drivers. traditionally underserved communities conduct its study, and sought opinions
In describing the framework that and consumers.21 on how best to collect that information.
would be applied to determine whether FIO then proposed to define LMI by FIO explained that it considered the
personal automobile insurance is adapting the definitions used by the currently available data relating to
affordable, FIO examined the level of a Federal Deposit Insurance Corporation premiums for personal automobile
person’s income that should be devoted (FDIC), which defines low-income as insurance and concluded that the data
to that expenditure and cited to the ‘‘individuals and geographies having a is inadequate for FIO to monitor the
suggestion by at least one commenter to median family income less than 50 extent to which Affected Persons have
the April 2014 Notice, that personal percent of the area median income’’ and access to affordable personal automobile
automobile insurance is affordable if it moderate-income as ‘‘individuals and insurance.27 FIO stated that insurers
does not claim more than 2 percent of geographies having a median family
a low-income family’s take-home pay.17 have the most complete and accurate
income of at least 50 percent and less information that would allow it to
FIO also cited another study of the than 80 percent of the area median
affordability of personal automobile perform its function of monitoring the
income.’’ 22 ‘‘The area median income extent to which Affected Persons have
insurance that found the national is: (1) The median family income for the
average insurance expenditures divided access to affordable automobile
[metropolitan statistical area]; or (2) the insurance and would be able to provide
by national median income has been statewide non-metropolitan median
below 2 percent since 1995.18 In accurate price quotes for a given profile
family income, if a person or geography
addition, FIO also cited to a Current of a driver, including for a specific
is located outside a [metropolitan
Employment Statistics (CES) report that geographic area.28 In addition, FIO
statistical area].’’ 23 FIO proposed to
found the average expenditure for all noted, insurers have the information to
adapt this definition by using median
households for automobile insurance calculate the average annual premium
household income as defined and
and the average income after taxes for for liability coverage for personal
identified by the Census Bureau,24
all households, based on 2013 data, instead of median family income, in its automobile liability insurance in the
indicated that all consumers spent about study of affordability of personal standard market for urban areas, and
1.6 percent of average income after taxes automobile insurance. Accordingly, FIO areas where the majority of residents are
on automobile insurance.19 Based on proposed to define LMI persons as minorities or LMI persons.29
this analysis, FIO proposed to presume ‘‘individuals living in areas where the Finally, FIO again requested that
personal automobile liability insurance commenters provide feedback on the
is affordable if, for Affected Persons, the 20 July
2015 Notice, supra note 3, at 38,280. following:
21 Id.
(proposing to define urban area as densely
16 Id. at 38,820 & fn. 38, noting that, in 2011, of developed territory that encompasses at least 2,500 1. FIO’s proposed working definition
the 330 insurers that wrote personal auto insurance people, of which at least 1,500 reside outside the of ‘‘affordability’’ in relation to personal
in the standard and non-standard market, 95 wrote institutional group quarters. See Census Bureau, automobile insurance;
personal auto insurance in the non-standard ‘‘2010 Census Urban Area FAQs,’’ available at
market. Of the 95 insurers in the non-standard https://www.census.gov/geo/reference/ua/ 2. The key metrics FIO proposes to
market, 15 also wrote in the standard market. See uafaq.html). use to calculate an affordability index
StoneRidge Advisors, LLC, ‘‘Non-Standard Auto 22 July 2015 Notice, supra note 3, at 38,280 & fn.
for Affected Persons (e.g., premium,
Insurance Market Overview & M&A Trends,’’ View 41 (quoting FDIC, ‘‘Community Reinvestment Act
from the Ridge (August 2012), at 2, available at (CRA) Performance Ratings,’’ available at https://
income, and other metrics); and
http://stoneridgeadvisors.com/Content/View_From_ www5.fdic.gov/crapes/peterms.asp). 3. The best approach for FIO to obtain
The_Ridge_August_2012.pdf. 23 Id.
17 July 2015 Notice, supra note 3, at 38,278. 24 Id. at 38,280 & fn. 43, noting that household
appropriate data to monitor effectively
18 Id. at 38,280 (citing Insurance Research
income includes income received on a regular basis
the affordability of personal automobile
Council, Auto Insurance Affordability (November by the householder and all other individuals 15 insurance for Affected Persons.30
2013), at 7). years of age and older in the household, whether
jstallworth on DSK7TPTVN1PROD with NOTICES
19 Id. at 38,280. Each month the Bureau of Labor related to the householder or not. It does not 25 July 2015 Notice, supra note 3, at 38,280.
Statistics’ CES program surveys approximately include capital gains or noncash benefits. 26 31 U.S.C. 313(c)(1)(B) (incorporating by
146,000 businesses and government agencies, According to the Census Bureau, ‘‘respondents
reference the definition established in 12 U.S.C.
representing approximately 623,000 individual report income earned from wages or salaries much
1811, note).
worksites, in order to provide detailed industry data better than other sources of income and that the 27 July 2015 Notice, supra note 3, at 38,280.
on employment, hours, and earnings of workers on reported wage and salary income is nearly equal to
28 Id. at 38,281.
nonfarm payrolls. See BLS, ‘‘Current Employment independent estimates of aggregate income.’’
29 Id.
Statistics—CES National,’’ available at http:// Census Bureau, ‘‘About Income,’’ available at
www.bls.gov/ces/. https://www.census.gov/hhes/www/income/about/. 30 Id.
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II. Final Working Definition of affordability for each category of also offered support, acknowledging
Affordable Personal Auto Insurance Affected Persons. The Financial that an affordability index can be a
After considering all the comments Services Roundtable (FSR) commented useful method for monitoring
received—to both the April 2014 and that a ‘‘mathematical index . . . affordability over time.38 In an August
July 2015 Notices 31—and after attempts to reduce a myriad of complex 2015 IRC Study, Trends in Auto
undertaking additional research and factors into a single ‘one-size fits all’ Insurance Affordability (the IRC 2015
stakeholder consultation, FIO has formula,’’ and ‘‘is inappropriate, Study), the IRC used ‘‘expenditure and
adopted a final working framework to insufficient, and perhaps even income data to form the IRC’s
study the affordability of personal auto misleading as a measure of auto expenditure-to-income ratio.’’ 39
insurance for Affected Persons. Personal insurance affordability.’’ 32 The Property FIO acknowledges the various
auto liability insurance is presumed to and Casualty Insurers Association of objections to adopting an affordability
be affordable if using an affordability America (PCI) commented that an index as a tool to measure and evaluate
index that is calculated by dividing the ‘‘affordability index does not consider the affordability of personal automobile
average annual written personal that insurers have little or no control insurance. FIO recognizes that some
over the costs that drive auto insurance commenters view an index as reducing
automobile liability premium in the
premiums and the ‘pass through’ nature a myriad of complex factors into a single
voluntary market by the median
of the insurance mechanism.’’ 33 formula,40 or that an index, potentially,
household income for ZIP Codes
Meanwhile, the National Association of disregards non-insurance factors such as
identified as being majority-minority or
Professional Insurance Agents (PIA) state tort law and highway safety
majority-LMI, the Affordability Index
commented that ‘‘attempts to define measures.41 However, FIO is influenced
does not exceed 2 percent.
In adopting this final working affordability as a fixed measure of by the established practices of other
definition, FIO has made some changes income, [do] not give an accurate federal agencies that use indices to
assessment of the non-insurance related measure affordability, and for other
to the proposed working definition from
factors—such as state tort law and purposes. Significantly, HUD created
the July 2015 Notice based on comments
highway safety measures—that impact the Location Affordability Index to
and additional research. First, FIO will
insurance prices.’’ 34 Two groups of provide estimates of the percentage of a
use the average annual written personal
consumer advocates that provided family’s income dedicated to the
automobile liability premium in the
comments—the Consumer Federation of combined cost of housing and
voluntary market to calculate the
America (CFA) and New Yorkers for transportation in a given location.42
Affordability Index. Second, FIO has
Responsible Lending (NYRL)—support Furthermore, FIO notes that the Bureau
adopted a different method of defining
the creation and use of an affordability of Labor Statistics (BLS) in the U.S.
and accounting for Affected Persons to
index to define affordability.35 CFA Department of Labor (DOL) has long
reflect issues with measuring
commented that it supports ‘‘an produced the Consumer Price Index
traditionally underserved communities.
affordability index that defines (CPI), the most widely used measure of
Third, FIO has clarified that, to
affordability as a . . . percentage of a inflation, which provides information
calculate the Affordability Index, FIO
household’s annual income.’’ 36 NYRL about price changes in the U.S.
will use median household income data
commented that ‘‘an affordability index economy,43 while the U.S. Department
for ZIP Codes identified as majority-
is an effective way to evaluate the of Commerce, Bureau of Economic
minority and majority-LMI areas.
affordability of personal auto insurance’’ Analysis produces the Personal
Finally, FIO has concluded that, based
and ‘‘should be based on the cost of auto Consumption Expenditure Price Index
on comments and its additional research
insurance as percentage of income.’’ 37 (PCE),44 generally thought to be ‘‘the
and consultation, all other aspects of the
The Insurance Research Council (IRC) single most comprehensive and
working definition are adopted as
proposed. theoretically compelling measure of
32 FSR, at 2, 7 (August 31, 2015), available at
consumer prices.’’ 45 And, even within
A. Elements of Working Definition of http://www.regulations.gov/
#!documentDetail;D=TREAS-DO-2015-0005-0011 the private sector, the National
Affordable Personal Automobile (FSR Comment). Association of Realtors produces the
Liability Insurance for Affected Persons 33 PCI, at 2 (August 13, 2015), available at http:// monthly Housing Affordability Index,
For its final working definition, FIO www.regulations.gov/#!documentDetail;D=TREAS- which provides a way to track over time
DO-2015-0005-0006 (PCI Comment).
has adopted an index to measure the 34 PIA, at 2 (August 28, 2015), available at http://
affordability of automobile insurance for www.regulations.gov/#!documentDetail;D=TREAS-
38 IRC, at 1 (August 28, 2015), available at http://
Affected Persons. FIO’s Affordability www.regulations.gov/#!documentDetail;D=TREAS-
DO-2015-0005-0004 (PIA Comment).
DO-2015-0005-0005 (IRC Comment).
Index will be calculated as the average 35 CFA, at 1 (August 31, 2015), available at http://
39 IRC 2015 Study at 17, summary available at
annual written personal automobile www.regulations.gov/#!documentDetail;D=TREAS-
http://www.insurance-research.org/research-
DO-2015-0005-0014 (CFA Comment): NYRL, at 1
liability premium in the voluntary (August 31, 2015), available at http://
publications/trends-auto-insurance-affordability.
market divided by the median www.regulations.gov/#!documentDetail;D=TREAS-
40 FSR Comment, supra note 34, at 2.
41 PIA Comment, supra note 36, at 2.
household income for the ZIP Codes DO-2015-0005-0010 (NYRL Comment). ‘‘CFA’’
42 Additional details about the HUD Location
identified as majority-minority and includes all signatories to the comment letter—10
national groups (Americans for Financial Reform; Affordability Index are available at http://
majority-LMI. Consumer Action; Consumer Federation of www.locationaffordability.info/default.aspx.
i. Affordability Index America; Consumers Union; NAACP; National 43 Additional information about the Consumer
Association of Consumer Advocates; National Price Index is available at http://www.bls.gov/cpi/
Based on comments received in Consumer Law Center, on behalf of its low-income home.htm.
jstallworth on DSK7TPTVN1PROD with NOTICES
response to the July 2015 Notice, clients; National Council of LaRaza; U.S. PIRG, and 44 Additional information about the Personal
United Policyholders) as well as 39 state groups Consumption Expenditure Price Index is available
insurers generally oppose the concept of from Alaska, California, Delaware, Florida, Georgia, at http://www.bea.gov/faq/index.cfm?faq_id=518.
using an affordability index to measure Illinois, Indiana, Kentucky, Maine, Maryland, 45 Craig S. Hakkio, ‘‘PCE and CPI Inflation
Massachusetts, Minnesota, Mississippi, Montana, Differentials: Converting Inflation Forecasts,’’
31 Eighteen comments were submitted in response New Jersey, New York, North Carolina, Ohio, Economic Review, at 51 (Federal Reserve Bank of
to the April 2014 Notice and 11 submitted in Oregon, Pennsylvania, Utah and Virginia. Kansas City 2008), available at https://
36 CFA Comment, supra note 37, at 2.
response to July 2015 Notice. All comments are www.kansascityfed.org/publicat/econrev/pdf/
available through www.regulations.gov. 37 NYRL Comment, supra note 37, at 1. 1q08hakkio.pdf.
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![45376 Federal Register / Vol. 81, No. 134 / Wednesday, July 13, 2016 / Notices
whether housing is becoming more or insurance would be to compare average area.’’ 53 Consumer advocates objected
less affordable for the typical premium to average income.’’ 50 to the use of written premium over
household.46 Finally, the IRC produces In its comment, the PIA quoted premium, expressing concerns
its own automobile insurance recommended using the median rather that using the actual prices paid for
affordability index.47 than the average, as it is a more precise coverage, i.e., written premiums, does
FIO notes the persuasive precedent of measure because ‘‘[e]ven when limiting not provide a good measure of
federal agencies using indices to consideration to personal auto[mobile] affordability because some consumers
measure affordability, among other liability in the standard market, will not purchase insurance upon
economic measures, and agrees with consumer choices and insurance receiving quotes that are too
those commenters who assert that an practices will skew average results in expensive.54 Accordingly, consumer
affordability index is an effective and certain areas of the country.’’ 51 advocates recommended that FIO
meaningful way to measure and Although a median might be a more analyze data to reflect the premiums
evaluate the affordability of personal precise measure than an average, it actually offered or presented to, rather
automobile insurance. Furthermore, as would require collection of data that is than the premiums paid by, Affected
FIO discussed in the July 2015 Notice, not readily available and that therefore Persons.55
might place an undue burden on the FIO will use written premium, not
other federal agencies use indices to
collecting agencies, insurers, and others. quoted premium, in this final working
measure other kinds of affordability.
After reviewing the comments, and definition. One commenter supporting
Accordingly, given FIO’s statutory using quoted premium has previously
authority to monitor affordability for taking into consideration the varying
perspectives on whether to use the acknowledged its drawbacks. In a
Affected Persons, FIO confirms the September 2014 study, the Consumer
adoption and use of the Affordability average premium cost, FIO has
concluded that using an average Federation of America opined that
Index. FIO recognizes that an index collecting premium quotes from Web
premium price is appropriate to
does not address affordability for any sites has several limitations such as (1)
calculate the Affordability Index. FIO
individual consumer but that it is a tool not all insurers’ Web sites provide
will use average premium price data for
that will help monitor over time the quotes; (2) a quote may be higher or
the purpose of calculating the
changes and trends in automobile lower than the actual price a consumer
Affordability Index because of the
liability insurance premiums for would pay depending on credit record;
following factors: (1) Average premium
Affected Persons as a group. Consistent and, (3) because quotes must be
data is more frequently collected; 52 (2)
with its statutory authority, FIO will collected manually, it is difficult to
additional conversations with industry
limit the application of the Affordability collect premium information for a large
participants have mitigated concerns of
Index and evaluate affordability only for number of geographies or driver
skewness in the premium distribution;
Affected Persons. profiles.56 Although commenters make a
and (3) using average premium data will
ii. Average Premium reduce the reporting and computational reasonable argument for gauging
burden on participating insurers and affordability based on quoted premiums,
FIO stated in the July 2015 Notice that statistical agents. the drawbacks identified in the 2014
an affordability index may be calculated In the July 2015 Notice, FIO proposed study and by commenters dictate use of
using the average annual written two ways to calculate average premium: annual written premium, not annual
personal automobile liability (1) Average annual written premium for quoted premium, in the calculation of
premium.48 The July 2015 Notice sought all insurers writing personal auto the Affordability Index.
comment on the appropriate method of insurance or (2) average quoted Commenters were divided on FIO’s
calculating the average premium and premium for a sample of insurers. proposal to limit its analysis to only the
the types of policies included in the Allstate was the only industry premium for liability coverage and not
calculation. commenter to specifically address the consider comprehensive, collision or
Three commenters specifically issue of using written or quoted other costs associated with personal
addressed the appropriateness of using premiums. In its comment, Allstate auto insurance. Comments from
the average premium price at all. The recommended ‘‘using actual total consumer advocates expressed concerns
American Insurance Association (AIA) premiums written’’ because that about this approach’s exclusion of
commented that average premiums information is collected by state comprehensive and collision coverage
should not be used to calculate an insurance departments and the National costs from an affordability index
affordability index because doing so Association of Insurance Commissioners calculation.57 Both CFA and NYRL
would reflect a population, even among (NAIC). It stated further that ‘‘[t]he commented that premiums for
Affected Persons, who choose to buy collection of quote information . . . comprehensive and collision coverage
higher limits, adjust their deductible, or would necessitate the development of should be included in calculating an
have multiple household drivers or ‘hypothetical’ customers who may or
53 Allstate, at 6 (August 27, 2015), available at
vehicles on a single policy.49 In may not be representative of the people
http://www.regulations.gov/
contrast, the American Academy of purchasing insurance in a particular #!documentDetail;D=TREAS-DO-2015-0005-0003
Actuaries (AAA) took the opposite view (Allstate Comment).
and commented ‘‘that an appropriate 50 AAA, at 1 (Aug. 31, 2015), available at http:// 54 See CFA Comment, supra note 37, at 6–7;
measure of affordability of automobile www.regulations.gov/#!documentDetail;D=TREAS- NYRL Comment, supra note 37, at 5–6.
DO-2015-0005-0012 (AAA Comment). 55 Id.
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51 PIA Comment, supra note 36, at 3. 56 Tom Feltner, Stephen Brobeck, & J. Robert
46 Additional information about the Housing
52 A recent study on auto insurance affordability Hunter, The High Price of Mandatory Auto
Affordability Index is available at http:// similarly focused on average premiums because Insurance for Lower Income Households: Premium
www.realtor.org/topics/housing-affordability-index. national and state insurance expenditure data was Price Data for 50 Urban Regions, at 3–4 (Consumer
47 IRC 2015 Study, supra note 41.
‘‘only available as an average.’’ Patrick Schmid, Fed. of America Sept. 2014), available at http://
48 July 2015 Notice, supra note 3, at 38,279. www.consumerfed.org/pdfs/140929_
‘‘Auto Insurance Affordability,’’ Journal of
49 AIA, at 3 (Aug. 31, 2015), available at http:// Insurance Regulation, vol. 33, no. 9, at 4 & fn.5 highpriceofmandatoryautoinsurance_cfa.pdf.
www.regulations.gov/#!documentDetail;D=TREAS- (2014), available at http://www.naic.org/ 57 CFA Comment, supra note 37, at 3; NYRL
DO-2015-0005-0009 (AIA Comment). documents/prod_serv_jir_JIR-ZA-33-09-EL.pdf. Comment, supra note 37, at 3–4.
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![Federal Register / Vol. 81, No. 134 / Wednesday, July 13, 2016 / Notices 45377
affordability index because ‘‘a rising Many variables affect consumers’ the standard market will ‘‘diminish the
number of low- to moderate-income decisions on the amount of collision impact of annual premiums charged to
drivers have car loans that require and/or comprehensive coverage to high-risk drivers as well as state laws
additional insurance coverage.’’ 58 In purchase. For example, risk-averse and other requirements.’’ 72
addition, CFA noted that this coverage consumers or consumers seeking asset Notwithstanding the conflicting
costs ‘‘approximately the same amount protection may purchase the maximum views, FIO notes that insurers generally
as the basic liability policy offered by a amount of coverage available, while use varying methodologies to rate
company,’’ 59 while NYRL commented risk-tolerant consumers may purchase policyholders who qualify for standard
that the cost of comprehensive and only the mandatory minimums. By market premiums versus those who do
collision coverage ‘‘puts an additional including collision or comprehensive not. For this reason, the exact size of the
burden on the driver who may make just coverage in its calculation of the standard and the non-standard auto
enough to make the car payment’’ 60 Affordability Index, FIO would market is hard to calculate. The
and, therefore, should be included in introduce unnecessary confounding potential impact of excluding premium
calculation of an affordability index. variables unrelated to affordability into data for the non-standard market—
The National Association of Mutual an already complex analysis. For these estimated at 30 to 40 percent of the total
Insurance Companies (NAMIC) reasons, FIO will limit the calculation of private passenger auto insurance
commented that limiting the scope of an the Affordability Index solely to market 73—when calculating the
affordability index to liability insurance premiums for mandatory liability Affordability Index is significant.
would lead to data quality problems coverage. Accordingly, FIO will use data for both
because state minimums vary and some the standard and non-standard market
iii. Market Scope to calculate the Affordability Index. As
states require personal injury protection
(PIP).61 Commenters were split on the issue of a result, FIO will capture relevant data,
Other commenters—AAA, Allstate, limiting the calculation of affordability while addressing the concerns of
PIA, and PCI—submitted comments to the standard market only. As consumer advocates that ‘‘good drivers
supporting FIO’s view that an explained by FIO in the July 2015 are being placed in non-standard
affordability index should measure only Notice, an affordability index may be markets as a result of socioeconomic
the cost of mandatory liability coverage. calculated for the entire market for factors.’’ 74 For present purposes, FIO
The AAA commented that the ‘‘optional personal automobile liability insurance will refer to the standard and non-
[c]omprehensive and [c]ollision or a specific market within personal standard market collectively as the
coverage should not be included’’ in an automobile insurance.66 FIO explained ‘‘voluntary market,’’ to distinguish it
affordability index.62 Allstate that generally, annual premiums for from the residual market and state
commented that ‘‘[i]nsurance personal automobile insurance are assigned risk pools.
expenditure should be adjusted to highest in the residual market, followed
by the non-standard market, and then iv. Affected Persons
reflect the minimum coverage required;
[because] it is likely that Affected the standard market.67 FIO proposed to FIO has revised its definition of
Persons purchase lower coverage limits, use only premiums in the standard Affected Persons. In the July 2015
which reduces the amount they spend market in order to diminish the impact Notice, FIO adopted the term ‘‘Affected
on insurance relative to the average of the higher annual premiums charged Persons’’ to collectively refer to
insurance consumer.’’ 63 PIA to the highest risk drivers in the other ‘‘traditionally underserved communities
commented that FIO should consider markets. and consumers, minorities, and low-
‘‘only personal auto liability insurance Consumer advocates opposed the use and moderate-income persons.’’ FIO
in the standard market.’’ 64 PCI of only data from the standard market then proposed an approach to account
commented that only ‘‘the mandatory and, rather, proposed including data for such persons in its working
personal auto liability ’’ coverage for from the non-standard and residual definition. First, FIO proposed to use
bodily injury and property damage market as well.68 CFA commented that ‘‘urban area’’ as the proxy for defining
should be included because ‘‘states residual and non-standard market ‘‘traditionally underserved communities
generally require only the purchase of should be included in an affordability and consumers,’’ following the Census
index ‘‘because both of those markets Bureau definition of urban area, ‘‘as
liability insurance as a condition of
serve, to some extent, good drivers who densely developed territory that
driving or owning a motor vehicle.’’ 65
are Affected Person.’’ 69 NYRL encompasses at least 2,500 people of
As explained in the July 2015 Notice,
commented that data should include which at least 1,500 reside outside
because liability coverage (or financial
residual market and non-standard institutional group quarters.’’ 75 Second,
responsibility limit) is the only
premiums because ‘‘good drivers are adapting the FDIC definitions for low-
requirement imposed by states as a
being placed in non-standard markets as income and moderate-income, FIO
condition of driving or owning an
a result of socioeconomic factors.’’ 70 proposed, for purposes of its definition
automobile, FIO concludes that liability
Other commenters supported FIO using of LMI, to consider individuals living in
coverage should be the basis for
only standard market data. The AAA areas where the annual income of the
calculating the Affordability Index. and PIA stated that only data from the geographic area is less than 80 percent
58 NYRL Comment, supra note 37, at 4. See also
standard market should be considered of the median household income of a
CFA Comment, supra note 37, at 3. in calculating an affordability index.71
59 CFA Comment, supra note 37, at 3. The PIA commented that using data in 72 PIA Comment, supra note 36, at 2.
73 Andrea Wells, ‘‘Nonstandard Auto Insurance
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60 NYRL Comment, supra note 37, at 4.
66 July Market Is Not For Everybody,’’ Insurance Journal
61 See NAMIC, at 5 (August 31, 2015) available 2015 Notice, supra note 3, at 38,280.
(April 13, 2015), available at http://
at http://www.regulations.gov/ 67 Id.
www.insurancejournal.com/news/national/2015/
#!documentDetail;D=TREAS-DO-2015-0005-0007 68 CFA Comment, supra note 37, at 5–6; NYRL
04/13/364065.htm.
(NAMIC Comment). Comment, supra note 37, at 4. 74 NYRL Comment, supra note 37, at 4.
62 AAA Comment, supra note 52, at 1. 69 CFA Comment, supra note 37, at 5.
75 July 2015 Notice, supra note 3, at 38,280;
63 Allstate Comment, supra note 55, at 2. 70 NYRL Comment, supra note 37, at 4.
Census Bureau, ‘‘2010 Census Urban Area FAQs,’’
64 PIA Comment, supra note 36, at 2. 71 AAA Comment, supra note 52, at 1; PIA available at https://www.census.gov/geo/reference/
65 PCI Comment, supra note 35, at 2. Comment, supra note 36, at 2. ua/uafaq.html.
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![45378 Federal Register / Vol. 81, No. 134 / Wednesday, July 13, 2016 / Notices
metropolitan statistical area or state.76 ‘‘urban areas’’ as a proxy for acceptable working definition and
In explaining its decision, FIO noted ‘‘traditionally underserved parameters for ‘‘traditionally
that the FDIC defines low-income as communities’’ because that term would underserved communities and
‘‘individuals and geographies having a exclude rural areas and could unduly consumers,’’ FIO reexamined the
median family income less than 50 skew data because of the presence of approach to the definition and
percent of the area median income’’ and high-income households in high-density parameters for Affected Persons as a
moderate income as ‘‘individuals and urban areas.84 Finally, a commenter whole and agrees with the observations
geographies having a median family warned that many states prohibit of CFA about the challenges of defining
income of at least 50 percent and less insurers from collecting data on income, ‘‘underserved’’ areas. Accordingly, in
than 80 percent of the area median race, religion, national origin, sex, lieu of using urban areas as a proxy for
income.’’ 77 Third, FIO noted that familial status, or disability; insurers do identifying underserved communities as
‘‘minorit[y]’’ is defined by law as ‘‘Black not want to collect such data; and any previously proposed, FIO adopts the
American, Native American, Hispanic requirement that insurers collect such approach recommend by CFA and
American, or Asian American,’’ which data could create conflicting regulatory instead will use ‘‘LMI ZIP Codes and
is the definition incorporated by requirements.85 majority minority ZIP Codes’’ 89 to
reference in the Wall Street Reform FIO agrees with the commenters who capture those communities that would
Act.78 In addition, FIO proposed to use suggested that its earlier proposal to use be considered underserved.
ZIP Codes in which the minority the Census Bureau-defined term ‘‘urban Based on stakeholder comments and
population exceeded 50 percent as the areas’’ as a proxy for identifying its own research, FIO affirms the
standard for majority-minority ‘‘traditionally underserved communities
validity of the definition and parameters
geographic areas.79 (including rural areas) and consumers’’
it adopted for identifying minority and
FIO received several comments in would fail to adequately capture and
LMI populations subject to the
response to the July 2015 Notice account for Affected Persons. Using
refinements discussed below. FIO will
regarding its proposed definition and ‘‘urban areas’’ as a proxy raises two
use the definition of minority set by law
parameters to account for Affected significant concerns. First, the proposed
as ‘‘Black American, Native American,
Persons. One comment encouraged FIO proxy is over-inclusive because ‘‘urban
Hispanic American, or Asian
to define Affected Persons broadly in areas’’ account for over 80 percent of the
American.’’ FIO has revised its
order to include communities that are U.S. population.86 This level of
adaptation of the FDIC methodology it
marginalized because of factors beyond coverage could capture numerous
communities and consumers that would proposed in the July 2015 Notice for
income.80 Two commenters opined that identifying LMI persons. Following
using geographic areas to identify not meet any reasonable definition of
traditionally underserved. Second, the more precisely the practice of the FDIC,
Affected Persons may be the most FIO will use median family income for
practical way to approach the proxy would exclude rural
communities. The CFA commented that designating LMI geographies instead of
affordability analysis, with one of those using median household income.90 FIO
respondents suggesting the use of ZIP FIO could attempt to use ZIP Codes
with high levels of uninsured motorists makes this change for two reasons: (1)
Codes as the measurement of geographic Aggregated non-MSA 91 median
area.81 Another commenter cautioned as a proxy to identify ‘‘underserved’’
areas, but conceded that even that data household income data is not readily
that the use of ‘‘urban areas’’ as a proxy available, and (2) existing regulatory
for ‘‘traditionally underserved is not easily obtained, and noted that
‘‘LMI ZIP Codes and majority minority frameworks tend to use median family
communities’’ would create a statistical income data instead of median
ZIP Codes’’ sufficiently capture those
category covering over 80 percent of the household income when analyzing
communities that would be properly
U.S. population, as over 250 million geographic areas. For example, the
considered ‘‘underserved’’ in this
people live in ‘‘urban areas.’’ 82 Another Federal Financial Institutions
context.87
commenter stated that the proposed The Wall Street Reform Act does not Examination Council produces annual
definition for Affected Persons would be provide a definition of ‘‘traditionally data tables by MSA, metropolitan
unmanageable because it would underserved communities and division (MD), and non-MSA using
combine populations (LMI and consumers’’ or a methodology for family income for the Community
minorities) with multiple and identifying such communities or Reinvestment Act (CRA) examination of
overlapping geographic units (i.e., ZIP consumers. Likewise, the legislative banks.92 As noted above, the FDIC uses
Codes and Census Bureau ‘‘urban history of the statute does not establish median family income to designate low-
areas’’).83 Relatedly, a letter by the a clear or specific Congressional intent and moderate-income individuals and
Ranking Member of the U.S. House of as to the meaning of the phrase.88 Given geographies. The lack of aggregated
Representatives Financial Services the lack of a statutory definition and an household income data for non-MSA
Committee, Congresswoman Maxine areas would pose a challenge for FIO to
Waters, to FIO Director Michael 84 Ranking Member Waters letter to Director readily identify rural LMI areas.
McRaith, cautioned against the use of McRaith, re FIO’s efforts to monitor the availability Therefore, FIO will use median family
and affordability of automobile insurance
76 Id. (November 19, 2015) (Waters’ Letter).
85 AIA Comment, supra note 51, at 3. 89 CFA Comment, supra note 37, at 5.
77 Id. (citing FDIC, ‘‘Community Reinvestment
86 FSR Comment, supra note 34, at 8–9 & fn.22. 90 This definition is based on the definition used
Act (CRA) Performance Ratings,’’ available at
87 CFA Comment, supra note 37, at 5. in the Community Reinvestment Act examination
https://www2.fdic.gov/crapes/peterms.asp).
and accepted and implemented by the Community
jstallworth on DSK7TPTVN1PROD with NOTICES
78 Id. (citing 31 U.S.C. 313(c)(1)(B) (incorporating 88 FIO notes that the CFPB has adopted a
definition for ‘‘underserved.’’ According to the Development Block Grant program, FDIC, Federal
by reference the definition established in 12 U.S.C. Reserve Board of Governors, Office of the
1811 note)). CFPB regulation at 12 CFR 1026.35(b)(2)(iv)(B): A
county is ‘‘underserved’’ during a calendar year if, Comptroller of the Currency, and the Federal
79 Id.
according to Home Mortgage Disclosure Act data for Financial Institutions Examination Council.
80 NYRL Comment, supra note 37, at 1. 91 An ‘‘MSA’’ is a metropolitan statistical area as
the preceding calendar year, no more than two
81 Allstate Comment, supra note 55, at 6; CFA
creditors extended covered transactions, as defined defined by the Director of the Office of Management
Comment, supra note 37, at 4–5. in § 1026.43(b)(1), secured by a first lien, 5 or more and Budget.
82 FSR Comment, supra note 34, at 8. 92 See, e.g., 12 CFR part 345, 12 CFR 228.12, and
times in the county. FIO has not adopted this
83 IRC Comment, supra note 40, at 2. approach because it is not well suited to insurance. 12 CFR part 25.
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![Federal Register / Vol. 81, No. 134 / Wednesday, July 13, 2016 / Notices 45379
income and not median household and county level data, and a more resulting in more targeted areas for FIO
income to identify LMI geographies. precise view than using census tract to ‘‘develop a more accurate evaluation
Accordingly, FIO will adopt the level data. This approach is consistent of accessibility and affordability of
revised definition and parameters in its with prior reports studying the personal auto insurance.’’ 99 Based on
final working definition to account for affordability of U.S. automobile the views expressed by commenters and
Affected Persons as (1) persons living in insurance which analyzed ZIP Code- stakeholders, and FIO’s own analysis,
majority-minority ZIP Codes, and (2) driven geographic areas.95 Focusing FIO will use majority-minority ZIP
persons living in majority-LMI ZIP analysis on a ZIP Code basis allows Codes and majority-LMI ZIP Codes as
Codes.93 FIO believes that this approach areas with high concentrations of parameters to ensure that the
results in a more workable framework Affected Persons to be specifically Affordability Index more accurately
while still reflecting the intent of the evaluated, thereby facilitating captures the experiences of Affected
statute to monitor ‘‘traditionally understanding of the insurance Persons.
underserved communities and experiences of Affected Persons across The use of ‘‘majority-LMI ZIP Codes’’
consumers.’’ the United States and compensating for in the final working definition adds
The Affordability Index is calculated the lack of individualized data about specificity to the proposed definition’s
as premiums divided by income. In Affected Persons. use of ‘‘specified geographic area’’ as the
essence, it measures insurance In its July 2015 Notice, FIO proposed parameter for reflecting LMI persons in
expenditure expressed as percentage defining majority-minority geographic the calculations. For purposes of the
relative to income. While FIO’s areas as those ZIP Codes in which the final working definition, majority-
authority is to monitor the availability minority population exceeds 50 minority ZIP Codes are those in which
and affordability of insurance for percent.96 Although FIO proposed that, the minority population exceeds 50
Affected Persons, an automobile for purposes of its working definition, it percent, consistent with the proposed
insurance premium study is most useful would define LMI individuals as those definition, and majority-LMI ZIP Codes
if linked to geography. This fact living in areas where the annual income are those in which LMI persons exceed
supports using majority-minority ZIP of the geographic area is less than 80 50 percent of the population. FIO is
Codes and majority-LMI ZIP Codes as percent of the median household mindful of the IRC’s comment that this
parameters to account for Affected income of a metropolitan statistical area approach could still result in an overlap
Persons. FIO does not have ready access or state,97 it did not provide the of the categories of Affected Persons
to individual insurance premium parameters for establishing the within the same ZIP Code. Thus, a
experiences and corresponding personal geographic areas for LMIs. As explained majority-minority ZIP Code may also be
demographics data and, as commenters above, using a ZIP Code as a unit of a majority-LMI ZIP Code. FIO will keep
have pointed out, it is unlikely that analysis allows FIO to match this potential complication in mind
insurers and statistical agents have this when identifying majority-minority and
demographic data for Affected Persons
demographic data. Consistent with the majority-LMI ZIP Codes.
to aggregated data already collected by
reasoning in the July 2015 Notice,
insurers, including ZIP Code-level data B. Definition of Affordability and
aggregate geographic areas can act as
regarding average premiums. Application of the Affordability Index
useful proxies to account for Affected
Additionally, income data is readily In developing its definition of
Persons. In lieu of obtaining
available at the ZIP Code level. Both the affordability, FIO considered three
individualized data that may not be
CFA and NYRL commented that ZIP definitions submitted by commenters in
maintained by insurers, ZIP Code
Codes should be considered in the response to the April 2014 Notice, and
provides the closest proxy for observing
identification of Affected Persons. The ultimately proposed adopting the
the experiences of Affected Persons
within discrete measurable geographic CFA commented that FIO should refine definition of ‘‘affordability’’ derived
areas for which data is collected and the proposed definition of ‘‘LMI people’’ from a dictionary and submitted by one
available.94 Insurers acquire data to set to focus geographic areas ‘‘explicitly on commenter: ‘‘being within the financial
premiums and, in so doing, capture LMI ‘ZIP codes.’ ’’ 98 The NYRL means of most people.’’ 100 FIO
policyholders’ addresses, including ZIP commented that ‘‘the focus should be explained that this ‘‘common sense
Codes, for account billing, marketing, placed on zip codes identified as definition may be used to develop ‘a
and other purposes. Accordingly, FIO populated by low- to moderate-income practical and effective approach to
will use ZIP Codes to define the individuals and zip codes with monitoring access to affordable personal
geographic areas for calculating the predominantly non-white populations,’’ automobile insurance,’ ’’ and proposed
Affordability Index because ZIP Code that it will presume automobile liability
95 See Tom Feltner and Douglas Heller, ‘‘High
premium data is available and has (1) insurance is affordable for Affected
Price of Mandatory Auto Insurance in
greater capacity to show variance across Predominantly African American Communities’’ Persons if the affordability index is less
populations and geographic regions (Consumer Federation of America November 2015), than or equal to 2 percent of household
than counties and states; and (2) lower available at http://consumerfed.org/wp-content/ income.101
uploads/2015/11/151118_ The FSR commented that generally
margins of errors than demographic data insuranceinpredominantlyafrican
based on census tract. Incorporating americancommunities_CFA.pdf?source=externa;
the proposed definition is ‘‘an
these attributes of ZIP Codes has a Stephen Brobeck and J. Robert Hunter,, ‘‘Lower- acceptable construct’’ but ‘‘strongly
positive impact on FIO’s Affordability income Households and the Auto Insurance disagree[d] that it can be reconciled
Marketplace: Challenges and Opportunities’’ with the factors and criteria delineated
Index by providing a more detailed view (Consumer Federation of America, January 2012),
of Affected Persons’ automobile under the proposed affordability index,’’
jstallworth on DSK7TPTVN1PROD with NOTICES
available at http://consumerfed.org/reports/cfa-
insurance experience than using state report-title-forthcoming/; NAIC, ‘‘NAIC Insurance and that ‘‘it is impossible to address the
Availability and Affordability Task Force Final
93 This definition will capture Affected Persons in Report’’ (January 1998), available at http:// 99 NYRL Comment, supra note 37, at 4.
both rural and urban areas. www.naic.org/documents/prod_serv_special_iaa_ 100 July 2015 Notice, supra note 3, at 38,279 & fn.
94 FIO considered but decided not to use census pb.pdf. 29 (citing PCI, at 1 (June 9, 2014), available at
96 July 2015 Notice, supra note 3, at 38,280.
tract data for the Affordability Index because http://www.regulations.gov/
97 Id. #!documentDetail;D=TREAS-DO-2014-0001-0020).
insurers do not sort data by census tract, but instead
by ZIP Codes. 98 CFA Comment, supra note 37, at 4. 101 July 2015 Notice, supra note 3, at 38,280.
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![45380 Federal Register / Vol. 81, No. 134 / Wednesday, July 13, 2016 / Notices
issue of affordability without openly that consumers spent about 1.6 percent oppose using the 2 percent measure.
referencing the concepts of consumer of average income (after taxes) on auto Nevertheless, for purposes of
choice.’’ 102 The AIA commented that insurance.108 monitoring the affordability of personal
the ‘‘proposed definition is vague and In comments to the July 2015 Notice, auto liability insurance, FIO will
ambiguous, and does not consider consumer advocates generally favored presume that insurance is affordable if
variations among states in required the 2 percent benchmark, while insurers the Affordability Index is less than or
liability limits, . . . mandated personal and industry representatives opposed equal to the 2 percent benchmark. Based
injury protection (PIP), or claim and the adoption of a fixed numerical value on the final working definition, the
litigation environments’’ and as a measure for affordability. Both the Affordability Index is the average
‘‘suggest[ed] that a reasonable definition CFA and NYRL stated that 2 percent is annual premium divided by median
. . . is one that recognizes relativity and consistent with previous analysis of household income.118
consumer choice.’’ 103 NAMIC basic household budgets.109 On the
commented that although it understood other hand, insurers and others In adopting this threshold, FIO
‘‘the difficulty in attempting to create generally opposed adopting the 2 considered that the overall cost of living
such a definition,’’ it found the percent metric. The AIA stated that the varies considerably across the nation
proposed definition of affordable 2 percent is artificial.110 The AAA and that variation is reflected in part by
confusing because of ‘‘the juxtaposition stated that the 2 percent is only a single the variation in household income. By
of ‘most people’ and ‘Affected measure, and using it alone may be ill- basing the threshold on a specific
Persons,’ ’’ and that ‘‘[i]t is not clear advised because it could over simplify percentage of household income, the
what ‘most people’ means’’ in the the complex task of defining measure will adjust, at least in part, for
context of the definition.104 ‘‘affordability.’’ 111 Allstate expressed the variations in the overall cost of
CFA commented that affordability concerns with the 2 percent, stating that living and income levels from region to
‘‘must be precisely defined rather than FIO should monitor actual cost rather region. Using household income at the
defined loosely as ‘within the financial than make subjective assessments using ZIP Code level is superior to other
means of most people,’ ’’ and ‘‘that two a threshold.112 The FSR indicated that approaches because it (1) applies to
percent of the household income of an 2 percent is a misrepresentation of the more of the population than family
Affected Person is the appropriate term ‘‘affordable’’ and is unjustifiably income, (2) lessens the effect of outliers
standard.’’ 105 Further, CFA stated that low; and that it could create a that could skew averages, (3) avoids the
assessment of affordability should be perception that automobile insurance complexity of residual income
relative to the purchasing capacity of coverage is an inexpensive service approaches that could be biased due to
low- and moderate-income persons, whose price can easily be altered to high cost areas, and (4) is a widely
because ‘‘it is essential that affordability meet particular needs and situation of accepted and used component to
is gauged against the ability of low- each particular consumer.113 The IRC analyze affordability of other consumer
wealth drivers to purchase said the 2 percent is arbitrary in that an products.119
insurance.’’ 106 external reference or standard does not
As these varying comments from the In settling on the 2 percent
exist to support it; 114 while NAMIC
insurance industry and consumer stated that a reasonable basis for a 2 benchmark, FIO was most persuaded by
advocates illustrate, there is not one percent standard does not exist, and that the data in the Consumer Expenditure
generally acceptable method or it raises the question of how much the Survey, as produced by the Census
definition of affordability. Rather, there expenditure may deviate from the Bureau and the BLS, which showed that
are differing views, approaches, and specified percentage before automobile the average household spent 2 percent
methodology. Accordingly, FIO has liability insurance is deemed of its income on automobile
considered all the comments provided, ‘‘unaffordable.’’ 115 The PIA said that insurance.120 FIO notes that other key
and adopts an objective standard as its relying on a metric to define consumer goods and services already
first formal measure and definition of affordability in terms of a percentage have an established affordability
affordability of automobile insurance for could lead to the desire to ‘‘fix’’ the threshold that is expressed as a
Affected Persons. For the reasons problem by some kind of a subsidy; 116 percentage of household income. For
explained in the July 2015 Notice, and and the PCI said the 2 percent is example, the affordability threshold for
reiterated below, FIO presumes that weighted heavily towards the higher housing is 30 percent, healthcare is 9.56
personal automobile liability insurance income groups because LMIs, by
is affordable if the Affordability Index is definition, will spend a higher 118 More specifically, as described above, the
less than or equal to 2 percent in the Affordability Index will be calculated using the
percentage of their income on average annual written premium for personal
areas used to account for Affected automobile insurance as would be the automobile liability insurance in the voluntary
Persons. In explaining its proposal, FIO case for other necessities.117 market, divided by median household income for
cited a study of the affordability of FIO has carefully considered the areas which are majority-minority or majority-LMI,
personal automobile insurance that views expressed by the commenters on i.e., Affected Persons exceed 50% of the population.
119 See, e.g., ‘‘America’s Rental Housing: Evolving
found the national average insurance this subject, including those who Markets and Needs,’’ (Joint Center for Housing
expenditures divided by national Studies of Harvard University (2013), available at
median income has been below two 108 Id. at 38,280. See also BLS, Current http://www.jchs.harvard.edu/sites/
percent since 1995.107 FIO also cited a Employment Statistics, supra note 19. jchs.harvard.edu/files/jchs_americas_rental_
report that found, based on 2013 data, 109 CFA Comment, supra note 37, at 3; NYRL housing_2013_1_0.pdf; and, New York City Rent
Comment, supra note 37, at 3. Guidelines Board, ‘‘2015 Income and Affordability
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102 FSR
110 AIA Comment, supra note 51, at 3. Study’’ (April 2015), available at http://
Comment, supra note 34, at 4. www.nycrgb.org/downloads/research/pdf_reports/
111 AAA Comment, supra note 52, at 2.
103 AIA Comment, supra note 51, at 2.
112 Allstate Comment, supra note 55, at 2. ia15.pdf (using household income in rental housing
104 NAMIC Comment, supra note 63, at 2.
113 FSR Comment, supra note 34, at 5–6.
affordability study).
105 CFA Comment, supra note 37, at 1. 120 BLS Consumer Expenditure Survey, ‘‘Table
114 IRC Comment, supra note 40, at 2.
106 Id.
1110. Deciles of income before taxes: Annual
115 NAMIC Comment, supra note 63, at 3–4.
107 July 2015 Notice, supra note 3, at 38,280 expenditure means, shares, standard errors, and
116 PIA Comment, supra note 36, at 2.
(citing IRC, ‘‘Auto Insurance Affordability,’’ coefficients of variation’’ (2014), available at http://
(November 2013), at 7). 117 PCI Comment, supra note 35, at 2. www.bls.gov/cex/2014/combined/decile.pdf.
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![Federal Register / Vol. 81, No. 134 / Wednesday, July 13, 2016 / Notices 45381
percent,121 and residential running statistical agents such as the Code-level premium data voluntarily
water is 2 percent.122 Independent Statistical Services (ISS), provide that data to the statistical agents
Therefore, FIO adopts a 2 percent Insurance Services Office (ISO), and the with which the insurers typically work.
Affordability Index as a reasonable National Institute of Statistical Sciences FIO will ask that insurers covered by
empirical benchmark for monitoring (NISS). Allstate commented that FIO this request provide the statistical
affordability and for the study to should use data available from the agents the following information: (i) ZIP
compare the cost of automobile NAIC, the Insurance Information Code-level premium data, (ii) for
insurance for Affected Persons. FIO Institute (III), and IRC.127 The FSR liability coverage at the financial
acknowledges that the Affordability expressed concerns about the substance, responsibility limit, (iii) for the
Index does not account for all workability, cost, and administrative voluntary market.
circumstances which may be relevant to burden of a data call.128 The IRC In combination, the data sources
an individual consumer’s cost of commented that FIO should conduct an described above are expected to provide
personal automobile insurance. analysis of existing data before initiating sufficient data to support the objective
Affordability for any individual research requiring new and costly data analysis necessary for FIO to monitor
consumer can be assessed accurately reporting and collection efforts.129 the affordability of personal auto
only within the context of that NAMIC, IRC and FSR’s comments insurance for Affected Persons. If,
consumer’s circumstances. averred that FIO should first analyze however, FIO receives incomplete data,
and report existing studies and other or if insurers or statistical agents are not
C. Data Sources data already available.130 In addition, responsive to this request, FIO may
In the July 2015 Notice, FIO NAMIC’s commented that the term collect information directly from those
specifically requested input on how to ‘‘monitor’’ should not be interpreted as insurers in the future.
best obtain appropriate data to monitor authority for FIO to collect data directly
Going forward, FIO will rely upon the
effectively the affordability of personal from insurers.131 Finally, PCI stated that
methodology and the data described
automobile insurance for Affected FIO should use BLS and Census Bureau
above to calculate the Affordability
Persons. After considering stakeholder data, and if FIO were to issue a data call,
Index it will use to monitor the
comments and potential information then it should rely upon third parties—
affordability of automobile insurance
services, FIO intends to collect and statistical agents like ISO, ISS, and
premiums in majority-minority or
analyze data received and aggregated by NISS—to aggregate that data.132
FIO has reviewed and evaluated the majority-LMI ZIP Codes. FIO will
statistical agents. In addition, FIO will
comments received from stakeholders publicly report its findings annually and
use data publicly available through the
on whether to collect data directly from note, among other things, the trend of
Census Bureau.123 In response to FIO’s
industry to support this work, and the Affordability Index relative to each
request, consumer advocate commenters
respects concerns about duplicative of the analyzed ZIP Codes.
suggested that FIO issue a data call to
the 100 largest insurers in each state in information gathering. FIO intends to Michael T. McRaith,
order to obtain vehicle data and to avoid unnecessary burdens or expenses Director, Federal Insurance Office.
reflect the premiums actually offered to on stakeholders. FIO will exercise all [FR Doc. 2016–16536 Filed 7–12–16; 8:45 am]
Affected Persons.124 reasonable efforts to use existing BILLING CODE 4810–25–P
Contrary to comments from consumer available information. Accordingly, at
advocates and the views expressed by this time, FIO will not collect data
Ranking Member Waters,125 industry directly from insurers through a data DEPARTMENT OF THE TREASURY
stakeholder comments objected to FIO call as proposed in the July 2015 Notice.
issuing any data calls or other For its initial affordability study, FIO Proposed Collection; Comment
mandatory collections. Many argued will use data currently available from Request
that FIO could obtain information it the Census Bureau,133 statistical agents,
needed from existing sources. The AIA and certain states. In this regard, 20 AGENCY: Departmental Offices,
commented that FIO should consult states require insurers to report ZIP Department of the Treasury.
with the Automobile Insurance Plan Code-level automobile premium data to ACTION: Notice and request for
Service Office (AIPSO) for data,126 one of three statistical agents (ISO, ISS, comments.
while the AAA commented that FIO and NISS) who collect and aggregate
should use data available from this data. SUMMARY: The Department of the
For purpose of its next study in 2017, Treasury, as part of its continuing effort
121 Shared Responsibility for Employers FIO will request data from insurers who to reduce paperwork burdens, invites
Regarding Health Coverage, 79 FR 8544 (Feb. 12, have a statutory surplus greater than the general public and other Federal
2014), available at https://www.gpo.gov/fdsys/pkg/ $500 million as of December 31, 2015,
FR-2014-02-12/pdf/2014-03082.pdf; 26 CFR
agencies to comment on a proposed
601.105, available at https://www.irs.gov/pub/irs-
and who annually collect more than information collection that will be
drop/rp-14-62.pdf. $500 million of premium for personal submitted for approval by the Office of
122 The cost of water/wastewater is considered automobile insurance. Management and Budget. The Federal
unaffordable when it exceeds 2% of median For 2017, FIO will request that large Insurance Office (FIO) is monitoring the
household income. See U.S. Environmental insurers who do not already report ZIP
Protection Agency, Memorandum re: Financial extent to which traditionally
Capability Assessment Framework for Municipal underserved communities and
127 Allstate
Comment, supra note 52, at 2.
Clean Water Act Requirements (Nov. 24, 2014), consumers, minorities, and low- and
jstallworth on DSK7TPTVN1PROD with NOTICES
128 FSR
Comment, supra note 34, at 3.
available at http://www.epa.gov/sites/production/ moderate-income persons have access to
files/2015-10/documents/municipal_fca_ 129 IRC Comment, supra note 40, at 3.
framework.pdf. 130 NAMIC Comment, supra note 63, at 4–5; IRC
affordable personal automobile
123 See Census Bureau, ‘‘American Fact Finder,’’ Comment, supra note 40, at 3; and FSR Comment, insurance, pursuant to 31 U.S.C.
available at http://factfinder.census.gov/. supra note 34, at 3–4, 10–11. 313(c)(1)(B).
124 CFA Comment, supra note 37, at 6; NYRL 131 NAMIC Comment, supra note 63, at 5.
Comment, supra note 37, at 5–6. 132 See PCI Comment, supra note 35, at 5. DATES: Written comments must be
125 Waters’ Letter, supra note 86. 133 See Census Bureau, ‘‘American Fact Finder,’’ received not later than September 12,
126 AIA Comment, supra note 51, at 5. available at http://factfinder.census.gov/. 2016.
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Document Created: 2016-07-13 01:44:06
Document Modified: 2016-07-13 01:44:06
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| Action | Notice; advising adoption of methodology to monitor affordability of personal automobile insurance. | |
| Contact | Lindy Gustafson, Federal Insurance Office, 202-622-6245 (not a toll free number). | |
| FR Citation | 81 FR 45372 |
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