What’s ‘affordable’ auto insurance? Now there’s an answer.

Everyone wants car insurance that fits their budget. After all, it’s required in most states, and if you can’t afford it, you can’t legally drive to work, school or anywhere else. But what exactly is affordable auto insurance?

The federal government has come up with a definition, although it’s not meant for everyone. Under the methodology developed by the U.S. Treasury Department’s Federal Insurance Office, if the average cost of state minimum auto liability insurance is more than 2 percent of the median income in neighborhoods with heavy minority and low-income populations, it’s unaffordable.

The agency says it will analyze the cost of liability insurance and Census data for qualifying ZIP codes and report its findings annually. It did not say what else, if anything, it will do with the findings.

No immediate impact

The announcement is noteworthy, considering that car insurance is regulated by the states, and all except New Hampshire require drivers to buy auto liability insurance. One consumer advocate said it could be the first comprehensive analysis of auto insurance pricing and its effect on working-class families. Still, don’t expect the government to swoop in to make sure you have cheap car insurance. At least for now, the affordability data will be for informational purposes only.

Doug Heller, an insurance expert and consumer advocate with the Consumer Federation of America, says measuring auto insurance affordability might not have an immediate impact, but it has the potential to produce meaningful results in the long run. For now, he says, it can offer “a fair assessment of what it takes to buy auto insurance in communities which have historically struggled” to make ends meet.

“That doesn’t in itself end high prices,” Heller says, “but it puts a spotlight on auto insurance pricing that has never really been there before, and that’s a darned good way to start.”

Advocates say formula starts a conversation

The insurance office was created in 2010 by the Wall Street Reform and Consumer Protection Act to monitor whether minorities and low-income consumers have access to affordable insurance. Its insurance affordability methodology has taken years to develop. In 2014, it began seeking comment on the issue from consumer groups, state insurance regulators, the insurance industry and others, including the Consumer Federation of America and the Property Casualty Insurers Association of America, which represents nearly 1,000 companies.

Robert Passmore, an assistant vice president with the insurers association, praised the agency for working with insurers and other parties. But he criticized its formula for not taking into account costs that he says drive insurance prices up every year: accidents, injuries, medical care, car repair and legal defense.

”The cost of losses and claims are going up, and there’s more claims, so there’s only one real direction premiums can take,” Passmore says.

And in focusing only on auto liability insurance, the insurance office’s equation leaves out other household expenses, such as buying a car, which are much more costly, Passmore says. “We think the methodology is less valuable to consumers than it could be,” he said.

Heller, the consumer advocate, says the agency’s formula is fair. The value to consumers will be determined by the federal government’s degree of transparency in disclosing the data it collects, he says, adding that good data could spur policymakers, regulators and consumers to consider the need for industry reforms.

Heller says low-income consumers shouldn’t have to decide between driving legally and paying their families’ medical bills. “If the long arm of the law can hold individuals accountable for not buying auto insurance, it’s essential, therefore, that we understand this market in which everybody is forced to buy the product,” Heller says.

Juan Castillo is a staff writer at NerdWallet, a personal finance website. Email: jcastillo@nerdwallet.com. Twitter: @JCastilloNerd.

This story originally appeared on NerdWallet.