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Subscribe to RSSIf you believe the ads, good drivers get the best insurance rates. But a new study shows auto insurers frequently charge good drivers higher premiums than those who recently caused an accident. And it appears from this research that the safe drivers who pay more are often lower income.
How could this happen?
The Consumer Federation of America (CFA), which conducted the study, says this reflects a common practice in the insurance industry of using factors such as education and occupation to rate risk.
A CFA survey in 2012 found that two-thirds of American believed considering these factors, rather than driving history was unfair.
Stephen Brobeck, CFA’s executive director, calls this a “discriminatory practice” that raises the rates for low-and moderate-income drivers.
The industry rejects any notion that it discriminates in any way.
“The policies we offer are fair in every way,” said Michael Barry, vice president of media relations at the Insurance Information Institute.
How CFA surveyed the marketplace
The CFA priced policies for two hypothetical customers: a high school receptionist and an executive. Both women were 30-years old, had driven for 10 years, lived on the same street in the same middle-income ZIP code.
But there were important differences.
The receptionist is single and rents an apartment. She has never had an accident or moving violation, but she was without insurance coverage for 45 days.
The executive is a married homeowner with a master's degree. Her auto insurance has never lapsed. But, she had an at-fault accident with $800 of damage within the past three years.
CFA researchers visited the websites of the five largest U.S. auto insurers – State Farm, Allstate, GEICO, Farmers and Progressive – looking for the minimum liability coverage required by that state. This was done for both women in 12 cities.
The results: Two-thirds of the 60 quotes were lower for the executive (who had an accident) than for the receptionist (who had none), often by 25 percent or more.
The Insurance Information Institute questions whether the test was fair because the receptionist had a break in insurance coverage and that could be seen as a risk factor. The Consumer Federation of America says the receptionist didn’t have a car for 45 days and therefore didn’t need insurance. Does that make her a riskier drive, they ask?
Why is this happening?
Insurance companies consider a variety of factors to determine the risk you pose and the price they should charge when you apply for an auto policy. Everyone agrees your age, sex, type of vehicle and driving history can help predict the likelihood that you will have an accident.
But should insurance underwriters consider your education, occupation or in some cases, your credit score? What do these socio-economic factors have to do with your ability to be a safe driver?
“These factors have been found to be actuarially sound ways to assess risk,” said Michael Barry, vice president of media relations at the Insurance Information Institute. “And before they are ever used, these rating criteria are vetted by state insurance regulators who have allowed them.”
The CFA says it’s not fair for someone to get a better rate simply because they have more education and more income.
“Our concern is that these factors are not proven; there is no logical reason to explain why they should work,” said Robert Hunter, CFA’s director of insurance and former Texas Insurance Commissioner. “The insurance companies say there’s a correlation and that’s all they need.”
Some insurance companies now consider your credit scores when setting your premiums. That doesn’t sit too well with Washington State Insurance Commissioner Mike Kreidler, who calls the practice a “blatantly unfair” way to assess risk.
“I think it’s terrible,” Kreidler told me. “Using a credit score in this economy? You have people who through no fault of their own have wound up with less quality credit and yet are still responsible drivers. They shouldn’t pay more for auto insurance because of that.”
Not in sunshine state
The California Insurance Department decides what ratings factors can be used by auto insurers to calculate auto premiums. Education, occupation and credit scores cannot be considered.
“We want rating factors that have a relationship to the risk of loss,” said Joel Laucher, California’s deputy insurance commissioner for rate regulation.
“You want something that’s fair and fairly intuitive so people understand why there would be a price difference. It should be something the driver can control and realize how they can amend their behavior to improve their rate.”
Massachusetts also restricts the use of socio-economic factors for private auto insurance.
“There was a determination made that auto insurance should more tightly track an individual’s driving,” said Massachusetts Insurance Commissioner Joe Murphy.
The bottom line
There are a lot of insurance companies competing for your business. Rates vary greatly.
A good place to start is your state insurance department’s website. Look for a comparison chart that lists the rates in your area for various hypothetical customers. It’s a simple way to see how various insurance companies compare and where you might want to go to get a quote.
(Find a link to your state’s insurance department at: National Association of Insurance Commissioners.)
You can get quotes from an independent agent who represents various companies or go online and do it yourself at sites such as InsuranceQuotes, InsWeb, NetQuote, InsuranceHotline or Answer Financial. Don’t expect an instant quote from these sites. In most cases, you’ll be contacted by agents looking for your business.
More information:
- ConsumerMan: Want to Cut Your Car Insurance Bill? Shop Around
- Consumer Reports: Car Insurance Buying Guide
- Insurance Information Institute: What Determines the Price of My Auto Insurance Policy?
Herb Weisbaum is The ConsumerMan. Follow him on Facebook and Twitter or visit The ConsumerMan website.
Leave a Comment:
I'm charged more than I think I should pay by my insurance company. I think I found out why
Yes, they do charge lower income people more money, but I think one of my vehicles affects my price more too. Some insurance companies even quote me much higher than others, but one finally told me it's because of my income, truck I use less than 2,000 miles a year, and my good, but not great credit score. I laughed at them and told it isn't the vehicle, income, or credit score driving it's me....And you should be insuring for the driver's record which is perfect.
maybe you should consider changing companies ---- i have a very similar situation to yours, and my rates have not increased.
I had one speeding ticket about 25 years years ago. I have not been involved in an accident in 45 years of driving. My insurance premiums have never done anything but go up. That's the story, folks.
It's a racket helped by Washington and State polititians who are owned by insurance companies.
What's your point? The price of Pepsi goes up every year too.
Even thought you're a good driver you may someday have an accident. If and when you do, the cost of fixing cars and broken bones tends to rise year after year.
Not sure why I am posting here since this is comment will be mixed in with all the ignorant responses here. First of all, insurance companies don't need to "find reasons" to charge everyone extra for insurance. They are free to charge whatever they want, period, as long as they do not illegally discriminate.
Actuarial studies are real important for insurance companies to make sure they are offering the most competitive rates to all demographics. Most people won't agree, and many will be offended, by how they calculate rates but at the end of the day it is just an honest attempt by insurance companies to charge the "right" amount.
I am sure the statistics show that married people are generally safer drivers than single people. So that is one important factor.
The credit score issue? That goes with the correlation that people who are more irresponsible with their credit are in, general, more irresponsible in life. If they are not careful how they spend, they are of the mind that they are not as careful how they drive.
If I was running an insurance company and saw that people with lower credit scores on average had 25% more claim dollars than those with higher credit scores than I would be stupid not to consider that in my rate calculations, since it is an easily measured attribute.
Finally! Someone who knows what they're talking about.
I would also wager most of the complaints come from people with bad insurance scores, lapses in coverage, etc.
Really? I have NEVER had a ticket, even parking in 32 years. My insurance has doubled because I live in an area that they say is full of illegal drivers. That has nothing to do with my competence. I can make up anything I like manipulating statistics.
Any industry regulated by their own people becomes corrupt. Insurance agencies and practices are regulated by: Guess what? The insurance commissioner of each state. Isn't that special? Our government is in every way designed for corruption. Congress oversees itself. The members vote themselves raises and benefits in the middle of the night, and the people who elect them hear about it the next day. Who is surprised?
I still haven't figured out the "uninsured motorist insurance charge". several years ago my state passed a law that required anyone owning a vehicle to purchase at least liability or get fined. you have to show proof of insurance when renewing your tag or license or at a traffic stop. sounded like a good thing to me at the time . . . AHH NO ! after the law was passed my car insurance went up 147.00 a year to cover "uninsured motorists" even though its against the law to driver without insurance. so i get shafted for doing the right thing & having insurance. HOW THE HELL IS THAT FAIR someone please explain
Funny you say that, because that's what OBAMACARE is, too.
To Imagonner
Just because there is a law in place does not mean people are actually going to follow that law. You can pass all the laws you want. Some are just NOT going to follow it. That seems to be the crux of the ongoing fight with regards to gun control too. There just isn't any easy one solution to anything.
Yeah there is, arrest the. Instead the cops ticket them and release them to repeat again. Fact.
Insurance Companies and their friends the polititians are a RACKET anyone who wins the lottery or is rich can start a insurance company and become richer.The Insurance companies own all the polititians in America and they and poilitians have fugged up America.
OK, name for me ONE person who won the lottery and went out and opened an insurance company.
Insurance legal bandits. Definitely not right to charge people more because of break in coverage. It is total bull@!$%# that they can charge more due to nothing that has anything to do with driving.
Greedy greedy sobs!!!!!!!!!!!!!!!
looking at the 'questioned' factors I can kind of see the arguments on rates. Like rent or own a home is disguised as to you park your car in a garage or the street (common question when applying for insurance) and say parking on the street is more dangerous. Basically it comes down to statistics these companies pay big bucks for actuaries (hope I spelt the right) people with a masters in math who can work the statistics "legally" in any direction to make these broader catagories for who pays what.
The sunshine state is Florida, not California
I'm older, my husband is older, we've been married 30 years, our vehicles are older, we've never had an accident or made any kind of claim, yet our rates just went up. We are not "affluent" by any means, but live comfortably. I don't understand why I'm paying for the shortcomings of others. I know I'm naive, but I think that rewards should be given to those who actually have earned and deserve them.
Want a good investment tip. Invest in insurance companies. Maybe not ones in hurricane prone areas. But, in general you can't lose. Owning much of the state legislatures has alot to do with the huge profits the companies make. (They make all the rules and change them when ever they feel profits may suffer). Good buisness to be in I guess. The only way to beat the insurance scams is to win the lottery and become self insured. But then you will still need a good lawyer though. In the end it is a no win situation for the majority of us. Good luck!
This is kind of a stupid article. If you don't like the rate shop around and find a rate you like. 66% of the quotes were higher? OK so what? ... that still leaves the rest lower. So she could go with that insurance. So you don't like the extra things they look at like being married or recently divorced or have children. Statistically speaking these things play a role in how people behave. That 45 day lapse is not a sign that she didn't need any insurance it is a sign that she may not pay the bill and insurance companies just like any other business don't want to have to deal with the hassle of non paying customers...so yeah they charge more for the trouble.
I don't really like insurance companies but in the end I don't blame them for factoring in the numbers and once again no one is forcing you to go with any particular brand... you have options.
Adjustments for anything othe than driving record are a scam. The insurance industry does it to make even more money to build even bigger buildings. Think what you want, but dont think things that have nothing to do with driving impact your driving. Instead of credit score, put something in the contract that makes rates go up if the policy holder pays more than 15 days late for 2 consecutive months. Wouldnt that be better than saying "690 credit score pays 15% more and a 691 pays nothing extra"? What makes these judging critera so stupid is this. Apparently these people are having a hard time paying their bills. Maybe they lost their job and had to take a couple part time gigs that dont pay as much. That means that cant afford things like they used to. How is making it more expensive going to do these people any good, or make them pay for the service? It'll be harder. Every sleazy outfit increases charges on people who are having trouble paying. That makes them have even more trouble, then the rates go up even further which causes more financial difficulties. To me, that is stupid.
it appears everything is a rip off as the name of the game is MORE MONEY at any cost........
Insurance of any kind is a scam. It is a scam because of government mandates. You must have auto insurance if you drive a vehicle on public roadways. So, the Insurance company considers this first and foremost when deciding what you will pay. Or, you can not ever own a car or go anywhere.
With the new Mandate on Health insurance, we will see the price of that rise. Which means you will pay whatever the provider charges. What is your alternative? Not have it and get taxed with nothing in return?
Go to any major city and view the skyline. Pick out the fanciest building you can see, head over to it and find out who owns it. Odds are, it will be an insurance company. They are raking in cash hand over fist and laughing at us all because we let our government make their insurance service mandatory.
I wish the government would make it mandatory for everyone to buy something from me. Say, ballpoint pens. I would buy them from China for 5 cents a unit and resell them to everyone else for 5 bucks a unit. Don't like the 5 buck pens? Too bad, you have to buy them from me and I charge 5 bucks, but plan to raise that price without notice to 10 bucks.
In my state we are required to carry insurance against uninsured drivers. If I get hit by an uninsured driver, my insurance pays for my damages. The bad news is that I live near a reservation and we have a lot of uninsured and DWI drivers. This isn't racist, it's a fact of life where I live. This is the same as our having to pay for medical care for uninsured patients, only it's more direct. You think there's something wrong with this picture?
In Michigan you have to have basically the same thing. On top of that the state has a fee of 125 bucks per vehicle per year (if i remember correctly, might be 150) that they keep in a fund to protect insurance companies from large claims that might hurt their bottom line.
We are getting screwed by insurance companies and Lawyers. Cant do much about it, we don't have that kind of cash to stuff in pockets of greedy politicians.
More idiotic media ranting about the evil corporate machine attacking the poor.
No mathematical formula will be 100% fair to every single person. Luckily insurance companies use different formulas, so unless you're lazy and useless you can shop around, and find a company whose math doesn't work against you.
I was poor once but managed to fix that by not smoking, not doing drugs, not drinking, never quitting a job until I had another, not having more kids than I could pay for, watching my diet and weight, never passing up a chance to get a meaningful education, working two jobs and not taking expensive vacations etc. I have never had a car accident that was my fault. I can understand why responsible people have better driving records than Obama voters. I already have to pay high taxes to support the 47 % who drink, smoke, eat fast food, don't work, quit school and have kids they can't support. Why should I pay higher auto insurance premiums for the poor and uneducated who as a group are as irresponsible behind the wheel as they are in their personal lives?
There are plenty of poor conservatives out there. I'm not poor, but struggled to make ends meet when I was younger. Fortunately, the insurance companies weren't deciding rates based on how many cookies you pack in your lunch back then.
I find it odd how everyone thinks it is alright to keep people down. People who struggle to get by end up being penalized by sleazy scam artist companies that provide insurance or whatever other services they use to scam people out of money. It is ridiculous.
I read an article awhile back where a woman somewhere had lost her job. She ended up with some credit card debt she was having a hard time paying. She was charged huge amounts because of late payments and the like. Instead of paying 100 bucks a month when she was working, the unemployed woman was suddenly strapped with 200 bucks a month with added fees and interest additions. So, how is that supposed to help her pay? It makes it harder, I'd think. It is more likely she will just stop paying it all together and drop out of anything work related because it'd be easier. Same thing insurance companies do and it should be illegal.
Why am I not surprised?
Insurance. I have a lot to say about insurance [companies] and none of it is good. Much has been written and expounded upon about the shortcomings, irregularities, and downright fraud of 'insurance.' Did you ever wonder .... why is insurance t a requirement in so many states for just about anything a person wants to do? Also, why do soooo many organizations who claim to exist to increase or monitor the benefits of its members peddal insurances? Why is the insurance industry one of the largest lobbies in the U.S. Capitol? Why are salaries of the largest insurance conglomerates so huge? Just another glaring example of how the one percent [ the "gold ] controls, conspires, contrives, convolutes, and co-opts our economy.
Insurance needs to stop being a business period. The purpose of insurance is to provide a service where you give them money and they give you money if something bad happens. Giving people money is not profitable so insurance companies do everything they can to find an excuse not to pay. Sure there are legit claims of fraud but the customer, but more often the company just doesn't want to pay. What are you going to do? Sue? Hard to sue without resources and the insurance company has more resources now that they have your money.
The problem is that we need insurance. If we total our car, our house burns down, we get a serious illness, we need that social safety net. What we need is to make insurance a non-profit venture so we take away their motive to rip us off.
Florida is the sunshine state...FYI
With all the uninsured hit and runners in this country it doesn't surprise me!
When I got my last quote for insurance, the company wanted my SSN. I told them no way in hell are they getting it and explained why, Privacy Act of 1974 violation. I informed them that if they ever got my SSN and used it without my explicit written authorization we would be in federal court.
See your doctor about your paranoia condition...
Not to fuel your paranoia, but it's usually quite easy to get a "hit" on someone's insurance (credit) score without a ss#. Get your credit report and look at the "soft hits"- I guarantee they looked without the ss#.
LOBBISTS. Let us thank them. I haven't had an accident in 34 years, yet I am charged in anticipation of one. Gotta love those government regulations. They know me better than me.
When your insurance lapses you cannot get re-insured at that same rate. Unless the lapse wasn't your fault and you get the state Attorney General's office involved. Wells Fargo formerly Wachovia Bank in an inheritance deal failed to forward the premium notices to me on a house I inherited contrary to a signed contract to do so and when I had a claim I found I had been cancelled. A complaint to the State Attorney General's Office got them (Wachovia) to call me at eight o'clock on the day before they had to respond to the Attorney General's deadline for settling begging me to settle. They said "We'll get you insurance." I said, "At the same price" "Oh yes" so they used their insurance division to get the insurance at the same price. The difference wasn't the economic difference in the income but the fact that one had let the policy lapse.
I firmly believe that INTELLIGENCE is what keeps people out of accidents. Someone who has a "quick" mind that is constantly "on" will see danger much sooner, and be able to react to avoid an accident.
Intelligence relates directly to education. Intelligence and education relate directly to household income and/or occupation.
Consider this -- is a surgeon, who's hands are his livelyhood, likely to do something stupid and get himself into a situation where he might lose one (or both) hand(s)? Absolutely not!
Me? I have an engineering degre. Graduated first in my class. I currently hold a six-figure income job -- yes, even in this "horrible" economy. The last accident I caused was in 1985 -- I only had my drivers license for less than a week, and was in high school. (So, no degree, no status, and no high-income job, and I caused an accident -- see how this all fits together?!)
Guess what? I currently have FOUR (4) cars -- a 2012 Honda Pilot, a *modified* 2009 Mustang GT (see avatar), a 1963 Ford Falcon V8, and a 2005 Mazda 3 (my "beater" car that I drive to work every day and don't care if it gets door dings or a chipped windshield). My insurance on these four cars is amazingly low -- and I think that's the right thing for the insurance companies to do!
I have no issue what anything this article reported. It's the right thing to do!