The newly established Federal Insurance Office (FIO), part of the Treasury Department, announced they will be looking into the affordability and availability of auto insurance. This highlights a debate within the insurance industry about whether the federal government should be involved in regulating the property casualty insurance industry.
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Does having the feds involved make sense?
Not surprising, the views on both sides of this argument are purely self serving. Ignoring that point, here are a couple key points to consider if the feds do get involved:
- A study of affordability is meaningless without a metric measuring product quality. Other industry’s that sell to consumers are measured on product quality. Not insurance. What good is a policy that costs less if the company that sold the policy refuses to honor the promise to protect and pay a claim? Affordability without a measure of product quality is meaningless.
- All insurance products will be over-priced so long as the industry lacks transparency. Without transparency, consumers find it difficult to understand what they’re purchasing. In free markets with transparency, competitors fight bitterly for business. This fight for business forces suppliers to become more efficient so they can continue to fight. This is not the case in the insurance industry simply because the competitive dynamic that drives other American businesses does not exist due to lack of transparency. This is one of the reasons so much money is spent by the large insurers on advertising. Advertising is very effective when there’s a lack of real information.
Your Input on Affordability and Availability
For the study by the FIO, the data is available in the public domain. The basis of our analysis will come from the blog post titled “Auto Insurance Rates Increasing at 2x Inflation Rate” posted March 17, 2014. Feel free to use this blog post for your submission as well.
The FIO says comments on affordability and availability may be submitted electronically through the Federal eRulemaking Portal: http://www.regulations.gov, or by mail to the Federal Insurance Office, Attention: Lindy Gustafson, Room 1319 MT, Department of the Treasury, 1500 Pennsylvania Avenue NW., Washington, DC 20220.
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