Some big insurance companies charge higher auto rates for lower-income drivers, even if the drivers have safe driving records, an analysis from the Consumer Federation of America finds.
The federation, a nonprofit comprising 250 consumer groups, has argued that insurers often give nondriving-related factors, like occupation and education, more weight than driving-related factors, and that such practices unfairly penalize lower- and moderate-income drivers. Occupation and education, the federation says, are proxies for income.
In its latest report, the federation obtained insurance quotes in 12 different cities from the public Web sites of five big auto insurers, using information for two hypothetical women. The insurers — State Farm, Allstate, GEICO, Farmers and Progressive — represent more than half of the private auto insurance market, the federation said.
Both drivers shared certain characteristics: Each was 30 years old; had been a driver for 10 years; lived in a Zip code with a median income of $50,000; owned and drove a 2002 Honda Civic; drove 7,500 miles per year and carried the minimum auto liability insurance required by state law (minimums vary from state to state).
The first driver, however, was a single receptionist with a high school education who had a 45-day gap in her insurance coverage, but had never had an accident or moving violation. (Gaps in coverage often occur because drivers can’t afford their premiums, said Robert Hunter, the federation’s director of insurance and a former Texas state insurance commissioner.)
The second driver was a married executive with a master’s degree who owned a home, had continuous insurance coverage and one at-fault accident with $800 of damage in the last three years.
In two-thirds of the 60 quotes, the receptionist was quoted higher premiums, even though her driving record was clean. And in more than three-fifths of the cases, the premium quoted the receptionist exceeded the quote for the executive, who wasn’t as safe a driver, by at least 25 percent.
The federation argues that “largely uncontrollable” factors, like education and occupation, are often given greater weight in rate setting than actual losses.
Robert Passmore, senior director of personal lines for the Property Casualty Insurers Association of America, said in a telephone interview that it was reasonable to use such factors because “they are predictive of loss.” Different insurers give different weights to different factors, he said, depending on what they saw as the best way to predict a given driver’s risk.
During a conference call with reporters, Mr. Hunter and Stephen Brobeck, the federation’s executive director, were asked why the analysis didn’t include smaller automobile insurers as well. They said it was because the analysis was time consuming and because the largest companies tend to offer the lowest rates, even though the federation still considered many of them to be unreasonably high for lower-income drivers.
The federation argues that the wide disparity in rates quoted, from company to company and market to market, suggests that the auto insurance market is not truly competitive, but the insurance industry rejects that position.
“Auto insurance provides important, cost-effective financial protection to millions of Americans, and most drivers have dozens of auto insurers constantly competing for their business,” said Steven Weisbart, chief economist for the Insurance Information Institute, an industry group, in a prepared statement. “The price is risk-based and always will be.”
The federation’s analysis found that in every case, GEICO and Progressive quoted the safe driver — the receptionist — a higher premium than the driver who had caused an accident. In several cases, companies refused to provide a quote to the “good” driver, but offered one to the executive.
“We work to price each driver’s policy as accurately as possible, so that every driver pays the appropriate amount based on his or her risk of having an accident,” said Jeff Sibel, a spokesman for Progressive, in an e-mail. “We use multiple rating factors, which sometimes include nondriving factors that have been proven to be predictive of a person’s likelihood of being involved in a crash.”
Geico didn’t respond to an e-mail seeking comment.
State Farm, however, charged the receptionist (the good driver) less than the bad driver in all 12 cities. In addition, in all the markets, State Farm’s quotes were either the lowest or the second lowest.
That suggests, said Mr. Hunter, that State Farm gives less weight to nondriving factors than other companies. A State Farm representative declined to comment.
Mr. Hunter said states should insist that insurance companies make the factors used in setting their rates transparent, so consumers know how their applications for coverage were being considered.
Do you think factors like education and occupation should be used to set auto insurance rates?
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