A leading consumer advocate group says you might be surprised and even shocked when it comes to how your insurance company decides how much you should pay for auto insurance. The Consumer Federation of America says factors such as your occupation, education and even whether you own a home often play more of a role in your auto rates than whether you're actually a safe driver. The report says the result is that the low income often end up paying the highest rates even if they have never had an accident. And the rates for the poor, safer driver are as much as 25 percent higher.
The report studied the auto insurance premiums charged by the largest auto insurance companies in 12 cities (including Atlanta.) CFA says it studied 60 cases and in the majority of those, most large auto insurers quoted higher premiums to safe drivers than to those responsible for an accident within the past year. And in more than three-fifths of the cases with these higher premiums, the premium quoted the safe driver exceeded the premium quoted the unsafe driver by at least 25 percent.
CFA says insurance companies are looking at education, income, profession, and whether you're a man or a woman as factors to figure auto insurance rates. "They seem to be looking at everything except whether the person actually appears to be a safe driver," says Bob Hunter of CFA.
"A poor person who has never had an accident could have the same car, be the same age and live in the same block of the same neighborhood. But if their income is less and their occupation is one where you don't make a lot of money and their education is less, they will likely pay more for auto insurance than someone down the street who's had an accident, but who has more money."
Hunter says state insurance regulators should require auto insurers to explain why they believe factors such as education and income are better predictors of losses than at-fault accidents. "Policy makers should ask why auto insurers are permitted to discriminate on the basis of non-driving-related factors," he says.
The CRA report calls the practices uncovered in the report "discriminatory", saying those practices harm low and moderate income drivers. "This damage can be considerable since all states but one require drivers to carry auto insurance, and most Americans need a car to pursue work opportunities," said Stephen Brobeck, CFA's executive director. "
CFA says it priced policies in cities using the websites of the five largest auto insurers - State Farm, Allstate, GEICO, Farmers, and Progressive - who together have over half the private auto insurance market. CFA says in one case it compared premiums quoted to two 30-year old women who each had driven for 10 years, lived on the same street in the same middle-income zip code, and sought minimum liability coverage required by that state. But these two women differed in several important respects: One was a single receptionist with a high school education who rents, has been without insurance coverage 45 days, and has never had an accident or moving violation. And the other woman was a married executive with a Masters degree who owns a home, has had continuous insurance coverage, and has had an at-fault accident with $800 of damage within the past three years.
The CFA says these were the results:
In every case it says Farmers, GEICO, and Progressive quoted the safe driver a higher premium than the driver causing an accident. (In several cases, companies refused a quote to the good driver but gave one to the accident-causer.)
On the other hand, in all twelve cities State Farm charged the good driver less. Moreover, in all twelve cities, the rates quoted by State Farm were either the lowest (6 cities) or the second lowest (6 cities).
"With nearly one-quarter of the private passenger auto insurance business, State Farm dominates the market. If they can be a successful company without using highly discriminatory factors, other large companies should be able to do so as well," said Hunter.
The report said that prices can vary considerably among insurers and cities. Hunter says the report priced policies in middle-income ZIP codes, not moderate-income zip codes., Allstate's annual premiums for good drivers ranged from $850 (St. Louis) to $3,292 (Baltimore) while Progressive's annual premiums ranged from $864 (Cleveland) to $1,928 (Baltimore).
CFA said there were also wide variation within individual cities." For example, in Baltimore, despite the high rates quoted by Allstate and Progressive, a rate of $822 was quoted by GEICO for good drivers. And in Phoenix, the quoted Progressive rate was $1,304 while the quoted State Farm rate was only $480.
The CFA says the bottom line is that many prices quoted to the safe but poorer drivers are excessive and unaffordable. In 35 of the 60 cases studied, the insurers either quoted annual premiums in excess of $1,000 or refused to quote a price. And, in only four cases did they quote an annual premium under $500.
"A fairly high percentage of low- and moderate-income drivers cannot afford to purchase auto insurance, which is why so many risk breaking the law and getting stuck with accident bills," said Hunter. "State regulators should ask insurers why they cannot offer more safe drivers basic minimum liability coverage for about $300, and never more than $500, annually.
Hunter told me in California, there is now a plan that offers lower income drivers a policy they can afford. "And it's not subsidized by the state, it's just a fair rate," he said.
"What we really found is that a lot of the rates charged the lower income are not right and not fair," he told us.
Hunter also told us that insurance commissioners throughout the country need to do more to figure out why poorer drivers are being charged so much. "I wonder how many commissioners really understand what the low income driver is facing," he said. "Without insurance, you can't drive, and without driving, you often can't work."