Memo from Availability and Affordability Subcommittee to FIO Director McRaith 

Response to Questions from Regarding Availability and Affordability Activities of FIO 

May 7, 2013 

At the March FACI meeting, Beth Sammis posed a set of questions regarding FIO’s activities to 

fulfill its statutory charge to monitor the extent to which traditionally underserved communities 

and consumers, minorities and low-and moderate-income consumers have access to affordable 

insurance products regarding all lines of insurance, except health insurance. This memo is the 

Availability/Affordability Subcommittee’s response to those questions. 

1. Should we define underserved communities and if so how? 

2. Should we define access and affordability and if so how? 

Our March 8, 2013 memo addressed these questions and we cite from that memo: 

In response to your requests, we start by defining, or at least describing, the terms 

availability and affordability of insurance products. Availability means that essential 

insurance products are offered by insurers in a particular market. Affordability means that 

the cost of these insurance products is a reasonable percentage of a consumer’s income. 

We recognize that some consumers have incomes so limited that the consumers cannot 

afford the insurance products. We also recognize that some insurer practices may 

exacerbate the cost of insurance for low- and moderate-income consumers. Society more 

broadly needs to address the first problem, while we want to identify practices that lead to 

unfairly high premium charges for LMI consumers as one part of the solution to 

affordability problems. 

In analyzing availability and affordability issues, we believe there is a hierarchy of 

analysis that starts with identifying the insurance product that provides the essential 

financial security consumers need. Once the product has been identified – say auto 

insurance or residential property insurance or life insurance or retirement income 

insurance – the features of the product necessary for the product to meet the consumer’s 

need and expectations must be identified. 

Once the essential insurance product has been identified, the next step is to research 

whether the product is available in various markets, which may be defined by geographic 

location, type of insurer, type of sales, types of consumers eligible for coverage or 

marketed to by insurers. 

If the product is not available in certain markets, the next step is to research why this is 

the case. This research would look at barriers to insurers offering the product, if any, as 

well as the presence of demand for the product by consumers in that particular market. 

This research could lead to a variety of policy responses ranging from providing 
 

 

FACI Availability and Affordability Subcommittee Response to Questions 

May 7, 2013 

Page 2 

information to insurers to address information gaps or misconceptions to legislative 

changes that lower costs to bring a product to market or increase the return from bringing 

a product to market or financial assistance to consumers who would otherwise not be able 

to afford the essential products. 

If the research shows that insurers are making a product available, or would make a 

product available if consumers could afford the essential insurance product, but that 

consumers in that market are not purchasing the product, the next step is to examine the 

affordability issues, including the amount of income available for the purchase. There is 

no single number we can provide that defines “reasonable percentage of a consumer’s 

income.” Rather, the measure of affordability will likely vary across markets and 

products, particularly if the examination of availability and affordability is for various 

global markets and products and not just domestic markets and products. 

The DFA identifies three specific characteristics of consumers and markets for monitoring 

availability and affordability of insurance: traditionally underserved communities, minorities 

and low- and moderate-income consumers. Consequently, the DFA identifies to specific and 

objective characteristics of insurance consumers for monitoring – race and income. The third 

characteristic – traditionally-underserved – is undefined, but we believe that such a phrase refers 

to minority and low- and moderate-income communities and consumers which have traditionally 

been underserved. 

Using the methodology for analysis from our March 8, 2013 memo, we believe that FIO can 

identify different product markets and consumer segments – in addition to minority and low- and 

moderate-income communities and consumers – which are underserved for that product. For 

example, an analysis of residential property insurance markets is likely to identify availability 

and affordability issues for certain catastrophe perils in some communities. 

In examining the availability of affordability of insurance products, we urge FIO to specifically 

evaluate the role of existing and new distribution channels for various products and the specific 

role of insurance producers. As insurance products become increasingly complex, any analysis 

of product offerings must consider how those products are presented to consumers and the ability 

of consumers – on their own or with the aid of intermediaries – to exert market power. 

In summary, we urge FIO to utilize the methodology above for analyzing availability and 

affordability in specific product markets while always analyzing characteristics of race and 

income in that process. 
FACI Availability and Affordability Subcommittee Response to Questions 

May 7, 2013 

Page 3 

3. What insurance products should we monitor? 

The Dodd Frank Act created FIO and states: 

(d) SCOPE.—The authority of the Office shall extend to all lines of insurance except— 

(1) health insurance, as determined by the Secretary in coordination with the Secretary of 

Health and Human Services based on section 2791 of the Public Health Service Act (42 

U.S.C. 300gg–91); 

(2) long-term care insurance, except long-term care insurance that is included with life or 

annuity insurance components, as determined by the Secretary in coordination with the 

Secretary of Health and Human Services, and in the case of long-term care insurance that 

is included with such components, the Secretary shall coordinate with the Secretary of 

Health and Human Services in performing the functions of the Office; 

With this in mind, we suggest FIO monitor the availability and affordability of the following 

insurance products with specific attention to the availability of affordability of these products for 

minority and low- and moderate-income consumers. 

	 Personal Auto Insurance: All states and the District of Columbia require financial 

responsibility (almost always through personal auto insurance) for the operation of a 

motor vehicle. States vary in their enforcement of these insurance requirements, but the 

general trend is for greater enforcement through insurance databases and severe penalties 

for failing to maintain required insurance. Given that access to jobs for most workers is 

practically available only through use of a personal motor vehicle, the ability to legally 

operate a motor vehicle is a critical prerequisite for seeking and keeping a job. 

	 Residential and Commercial Property Insurance: Each catastrophe event in the United 

States reveals the limitations and failings of the hodge-podge of property insurance 

provision in our country. Given that consumer and business property investments have a 

long time horizon and that access to financing and maintaining these property 

investments requires meaningful property insurance coverage, residential and commercial 

property insurance should be monitored by FIO. 

	 Life Insurance: Life insurance is the archetype financial security tool for consumers 

seeking to protect the economic future of family in the event of death. Yet, the 

percentage of families with life insurance is on a long-term downward trend. FIO’s 

monitoring of life insurance products and markets could greatly advance insurer, 

consumer and policymaker understanding of who purchases what types of life insurance 

products at what point in their lives and what characteristics of consumers and products 

are associated with lack of supply, lack of demand or both. 
 

 

 

FACI Availability and Affordability Subcommittee Response to Questions 

May 7, 2013 

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	 Retirement Income: As the life insurance industry has transformed itself from principally 

supplying economic security in the event of death to a variety of investment-type 

products, life insurers are the principal suppliers of retirement income, generally, and 

lifetime income products, specifically. With the growth of consumer-directed retirement 

mechanisms displacing traditional pensions, workers must work most of their lives and 

have investment expertise to secure their retirement income. As with life insurance, 

FIO’s monitoring of retirement income products and markets could advance insurer, 

consumer and policymaker understanding of what characteristics of consumers and 

products are associated with lack of supply, lack of demand or both. 

	 Hybrid Long-Term Care: It appears that insurers are moving away from the sale of 

stand-alone LTC products and towards hybrid LTC products which combine some form 

of long-term care benefit with a life insurance policy or annuity contract. Stand-alone 

LTC products have caused significant problems for insurers, consumers and regulators. 

Given this history, FIO should work with state insurance regulators to monitor sales of 

the new and more complex hybrid LTC products. 

	 Credit-Related Insurance Products: Credit-related insurance products are those insurance 

sold in connection with a loan and include consumer credit insurance, force-placed 

insurance, collateral protection insurance, mortgage guaranty insurance, bond insurance 

and contractual liability insurance sold in connection with debt cancellation contracts and 

debt suspension agreements. These products are typically at the intersection of insurance 

and banking and, consequently, fall under the jurisdiction of both insurance and banking 

regulators. Historically, gaps in regulatory oversight of many credit-related insurance 

products have occurred. By monitoring the availability and affordability of these 

products, FIO can serve a critical role in fostering communication among insurance and 

banking regulators to ensure regulatory gaps do not occur. 

4. What issues should FIO consider to move us beyond past debates? 

It is unclear what is meant by past debates, but we suggest that the best way forward is through 

data-driven analyses of the availability and affordability of insurance in specific product markets. 

This requires the collection of more detailed data and more robust analyses of these detailed data 

than has historically been the case. 

In addition, given FIO’s role in international insurance regulatory activities and negotiations, 

FIO is well positioned to identify global trends, events and trade agreements affecting domestic 

availability and affordability of insurance products and the on-going abilities of state insurance 

regulators to impact insurance markets in their states. 
 

FACI Availability and Affordability Subcommittee Response to Questions 

May 7, 2013 

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5. What activities should FIO engage in to monitor access to affordable insurance? 

Building on our basic recommendation that FIO’s efforts to monitor availability and affordability 

of insurance should be data-driven, we suggest that FIO start by working with and building upon 

existing initiatives and activities. The first step is to identify existing data collection activities by 

statistical agents, state insurance departments, federal agencies and commercial organizations 

which could be shared with FIO and which provide sufficient data to analyze at least some 

aspects of availability and affordability in some product markets. For example, the Texas 

Department of Insurance collects detailed data from auto insurers and residential property 

insurers suitable for some availability and affordability analyses. FIO should also identify gaps 

in the data necessary for monitoring availability and affordability of specific products and 

product markets. 

To the extent that FIO identifies gaps in data necessary for monitoring products and product 

markets, we recommend that FIO work with state insurance regulators and federal agencies to 

develop needed data collection. Examples of such collaborative efforts might include: 

	 Work with the NAIC Auto Study (C / D) Group examining auto insurance issues for lowand moderate income consumers to develop a routine data collection mechanism and 

statistical plan for monitoring the characteristics of availability and affordability in small 

geographic areas. 

	 Work with state insurance regulators to develop a meaningful survey of all risk 

classifications used by insurers and the relative impact of these risk classifications on 

insurance premiums. 

	 Work with state insurance regulators and federal agencies responsible for catastrophe 

insurance, including the NFIP and TRIA, to develop an efficient and comprehensive 

vehicle for data collection to monitor availability and affordability of property insurance 

markets 

	 Work with the federal regulatory agencies to add credit-related insurance information to 

various mortgages and other types of lending databases, including the new National 

Mortgage Database and the Home Mortgage Disclosure Act.