Your financial record affects major purchases such as buying or renting a house or apartment, getting a car or student loan, but your credit score also affects the costs of everyday essentials like car insurance.
The Consumer Federation of America (CFA) interviewed 1,010 adult Americans about their car insurance premiums and found that consumers strongly object to insurance companies using of several non-driving related factors such as gender, education, and occupation to determine premiums. The CFA maintains this practice creates an unfair price discrepancy for lower income drivers, and is advocating that insurance companies should weight premium more according to a customer’s driving record.
examined the policy price factors from five major insurers including State Farm, Allstate, GEICO, Progressive, and Farmer’s, and examined rates in Baltimore, Miami, Louisville, Miami, Houston, and Los Angeles.
To get price quotes, CFA used a sample consumer, a single, 35-year-old female bank teller with a high school degree, who rents her home in a moderately priced zip code who had not had any collisions or accidents in the last 15 years. CFA then modified the sample consumer by changing her marital status, made her a homeowner in a higher income zip code, a college graduate, gave her a higher credit score, and a better job. There was a significant reduction in price for the married, wealthier woman, despite no difference in their diving records.
“Insurers are permitted to use factors such as education and occupation in setting prices even though these factors have nothing to do with driving and discriminate against lower-income drivers,” Stephen Brobeck, Executive Director of CFA, said in a press release. “Premiums should largely reflect factors such as accidents, speeding tickets, and miles driven, over which drivers have some control and which directly affect insurer costs.
“Low- and moderate-income families who are disadvantaged by insurer pricing policies need affordable liability coverage so they can drive legally,” Brobeck. “The fact that these families often can’t obtain this coverage helps explain why so many risk fines, or even imprisonment, by driving without insurance,” he added.
CFA made the following recommendations to make rates more equitable:
- Prohibit or severely restrict auto insurers from using factors unrelated to driving, such as education and occupation, in the pricing of policies.
- Create programs in which lower-income drivers with good driving records can purchase required liability coverage for affordable rates.
- Urge state legislatures to lower minimum liability coverage and make certain that insurers are charging fair rates for this coverage.