CLEAN DRIVING RECORD? YOU MAY BE PAYING MORE FOR INSURANCE THAN DRUNK DRIVERS

Insurers are charging middle-income consumers more than high-income consumers, even when the former’s driving records are better, a consumer advocacy group found, which urged state policymakers to address the nonrisk-based pricing.

The call-to-action came as the Consumer Federation of America (CFA) released a nationwide study that found in the majority of cases, drivers who are better-positioned economically were charged less for auto insurance, regardless of having DUIs or traffic violations.

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“In 21 of the 30 tests (70%) in which a comparison was possible, a moderate-income driver with a perfect driving record was charged more for basic liability insurance than a high-income driver with a recent DUI conviction,” the study found, according to a Sept. 26 CFA statement. “In 20 of 38 tests (53%), moderate-income drivers with clean records were charged more than high-income drivers who recently caused an accident resulting in bodily injury.”

The study focused on the nation’s five largest auto insurers—Allstate, Farmers, GEICO, Progressive and State Farm—in 10 cities: Atlanta; Baltimore; Chicago; Jacksonville, Fla.; Jersey City, N.J.; Los Angeles; Kansas City, Mo.; Minneapolis; Oklahoma City; and Queens, N.Y.

Of these insurers, State Farm was the most likely to charge drivers with clean records less than those with better economic setups but poor records, the CFA said. GEICO and Progressive were found to do the opposite, charging the higher-income driver less, regardless of driving record, more often than not, the CFA said.

“In each city, CFA tested two female drivers living at the same address, both of whom were 30 years old, licensed for 14 years, and drove a 2006 Toyota Camry 10,000 miles each year. The drivers differed only in personal characteristics that are correlated with income,” the CFA said.

Those personal characteristics that correlate with income are occupation, education, homeowner status and consistency of auto coverage due to reasons of car ownership, the CFA said.

The CFA took its two 30-year old hypothetical test subjects and gave them the following characteristics for their study: 

Graphic 1(Courtesy of the Consumer Federation of America)

The auto industry pushed back against the CFA’s claim that insurers use nonrisk-based factors to determine rates. 

“Insurance companies don’t look at your income,” Michael Barry, vice president of media relations for the Insurance Information Institute, an industry-funded, consumer education group, told Bloomberg BNA in response to the study.

Of the five major factors the CFA used to compare economic status, most insurers do ask about homeowner status, marital status and continuous auto coverage status, Barry said. Meanwhile, most do not ask about occupation or education, he said.

When asked why any of those factors were considered by automakers in determining risk, Barry said that it wasn’t that automakers believe those factors contributed to risk per se, but rather when insurers reviewed their claims data over time, persons that rent, were single, didn’t have continuous coverage, had certain jobs—which the CFA believes are lower paying ones—and/or had completed lower levels of education tended to also be the drivers that proved the riskiest to insure. 

“Based on the claim-filing history that auto insurers have received through the years—hundreds and thousands of claims—they’ve been able to make assumptions,” he said. 

Insurers aren’t using illegal pricing tactics, Barry said, rather they are basing their pricing on state-regulator-approved methods, and the rates are also approved by regulators.

“Auto insurers have successfully convinced state regulators that these questions have an actuarial foundation,” he said. 

In the end, it will be up to regulators to decide if the rates are fair and actuarially sound.

Graphic 2(Courtesy of the Consumer Federation of America)

In that spirit, the “CFA’s findings expose an extraordinary inequity in the current pricing of auto insurance in America that must be addressed by regulators and policymakers in states across the nation,” the CFA said.

“All those states with mandatory insurance have a special responsibility to ensure fairness in the marketplace,” Robert Hunter, the CFA's director of insurance and former Texas insurance commissioner, said in a Sept. 26 press release.  “At the very least, state insurance departments should immediately study these price inequities and, if confirmed by their research, eliminate them.”