Large firms charging poor people more for auto insurance

State Farm

State Farm is the only large insurer to to base auto insurance premiums on the client’s actual driving skills, says a new report. Image: State Farm/Flickr/CC BY

A new report from the Consumer Federation of America asserts that some large insurance companies are often charging higher auto insurance premiums for those with lower income, even if they have a clean driving record.

Low-income consumers pay more for auto insurance

“We were finding that low-income people with low-income jobs and less education were being charged more than even people with auto accidents that have higher income jobs and more education,” said J. Robert Hunter, director of insurance for the Consumer Federation of America.

The Consumer Federation of America is a nonprofit consumer advocacy group. Its report finds that larger insurance companies will often give more weight to factors like occupation and education in calculating the rate of premiums, rather than a person’s driving record. According to the report, occupation and education are actually used as an indicator of income.

Two imaginary drivers

The data for the report was obtained by submitting applications for two imaginary women who shared many characteristics in 12 cities. Both were supposedly 30-year-olds who have been driving since they were 20. They both live in areas with the same median income, and both drive a 2002 Honda Civic. The difference is that one is a high school-educated receptionist who has a clean driving record and the other has a master’s degree and is an executive. However, she supposedly has one at-fault accident to her name, which led to $800 in damage.

The profiles were submitted to Allstate, Farmers, GEICO, Progressive and State Farm. These insurance groups garner more than half of the nation’s auto insurance business, says the Consumer Federation of America.

Receptionist fared worse in most quotes

Forty of the 60 quotes offered the hypothetical receptionist came with higher premiums than were quoted to her more-educated counterpart, in spite of the executive’s inferior safety record on the road. In more than half of the cases, the difference was greater than 25 percent.

The receptionist was given higher quotes by GEICO and Progressive, the insurers with the largest presence in television advertising, in every case.

Only State Farm quoted the receptionist lower premiums than the executive in all 12 cities in which the pair of factitious drivers applied. In each case, its quotes were also the lowest or the second lowest received.

Insurance companies respond

The trade group American Insurance Association told CBS that “the Consumer Federation of America’s report draws overly-broad conclusions based on a tiny and unrepresentative sample of insurance policies.”

Former Texas state insurance commissioner Bob Hunter, now director of insurance for the Consumer Federation of America, said, however, that its findings are backed up by previous studies in a variety of zip codes.

Policymakers entreated to look into matter

Hunter suggested that policymakers should look into the matter and perhaps find ways to compel insurers to base premiums on factors that relate solely to their driving ability.

“State insurance regulators should require auto insurers to explain why they believe factors such as education and income are better predictor of losses than are at-fault accidents,” said Hunter. “Policymakers should ask why auto insurers are permitted to discriminate on the basis of non-driving-related factors.”


New York Times
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