Teresa McUsic

Auto insurers look at more than driving record to set rates

A Consumer Federation of America study shows that auto insurers will use five factors, including marital status and education, to reflect a lower economic status that leads to higher insurance rates.
A Consumer Federation of America study shows that auto insurers will use five factors, including marital status and education, to reflect a lower economic status that leads to higher insurance rates. Star-Telegram archives

When my mother died, my father contacted his auto insurance provider to get her name off the policy.

Along with condolences from his agent of some 40 years, he got a $200 premium increase.

Turns out marital status, education level and occupation are some of the ways insurers determine your rates. In addition, they look at whether you own a home and if you have had uninterrupted coverage.

Those five factors can have a substantial influence on how much you pay in annual premiums, according to a study released this week by Consumer Federation of America.

CFA analyzed minimum limits liability premiums quoted to men and women in 15 cities by five of the nation’s largest auto insurers and found that premiums jumped by an average of 59 percent, or $681 annually, when characteristics of the drivers were changed to reflect a lower economic status. The insurers used were Allstate, Farmers, Geico, Progressive and State Farm.

Insurance companies should judge you on how you drive, not who you are,

J. Robert Hunter, CFA’s director of insurance and former Texas Insurance Commissioner

“Insurance companies should judge you on how you drive, not who you are,” said J. Robert Hunter, CFA’s director of insurance and former Texas Insurance Commissioner. “Insurance companies are penalizing good drivers by hundreds and sometimes thousands of dollars each year based on economic and social status, and the end result is that the poor pay more, much more.”

James Lynch, chief actuary for the Insurance Information Institute in New York, said this type of premium adjustment has been around for 15 to 20 years and is based on insurers’ own data used to determine risk.

“Three out of four drivers have had no moving violations in the last three years. They have a good driving record,” Lynch said. “Companies have to determine risks that you are more likely to be in an accident.”

Lynch pointed out that insurers use the data to support the rate structures with state insurance departments around the country.

For the study, CFA used four profiles: a female bank executive and a male manufacturing executive, both married, with master’s degrees, who owned homes and had continual coverage, compared with a female bank teller and male factory worker who were single, had a high school education, rented and did not have continual auto insurance coverage.

“When insurers effectively segment their book of business it takes good risks from competitors,” he said. “Otherwise you end up overcharging people who are good risks and undercharging bad risks.”

For the study, CFA used four profiles: a female bank executive and a male manufacturing executive, both married, with master’s degrees, who owned homes and had continual coverage, compared with a female bank teller and male factory worker who were single, had a high school education, rented and did not have continual auto insurance coverage.

The banker and executive paid on average $1,144 across the 15 markets and five insurers, while the bank teller and factory work were charged $1,825, despite using the same address in each city for all four profiles.

Data from the Houston market, the only Texas market in the survey, showed an even wider difference with a Farmers auto policy: a lower-income male worker pays $2,010 more than higher-income workers for the same policy, while the lower-income female worker paid $1,819 more.

On average, the Houston market saw a $737 increase for lower-income workers over the five insurers.

The only instances where premiums came down for lower-income drivers were from Allstate, which lowered rates by 19 percent for the lower economic status female driver in Chicago and by 4 percent for both male and female drivers in Oklahoma City.

“Insurers aren’t allowed to use income directly to determine premiums, so they use surrogates for income,” said Douglas Heller, co-author of the study for CFA. “One reason they want high-end cumers is to sell them multiple lines of insurance. They are using the working poor to subsidize marketing efforts to other people.”

Heller said most of the states allow this type of profiling for higher premiums, but not all.

California, for example, only allows marital status as a factor in rates. As a result, in the study, CFA found just an $80 difference between high- and low-income customer premiums in Los Angeles.

The only other state that does not allow all five economic status questions is Massachusetts, which prohibits use of marital status but allows lapse of coverage to be factored in. California, Massachusetts and Hawaii do not allow credit scores to be considered in the rate determination, Heller said.

In the rest of the country all five questions and credit scores can be part of the rate determination.

A survey by CFA released with the study showed that most Americans are not supportive of factors other than driving and safety records to determine premiums.

“Most people don’t realize how much of an impact these questions have,” Heller said. “Lawmakers’ jaws drop when they hear a widower pays more than a married person or renters pay more than homeowners. All of these factors are different ways of saying you have lower income.”

As for my Dad, he decided it was time to get a new insurer after the rate increase. I did some research and found three with good financial ratings, customer reviews and industry rankings. He got quotes from all three and found each one was about 30 percent lower than what he had been paying, regardless of his marital status.

So he switched.

“We as customers have to spend more time shopping for our auto insurance,” Heller said. “There are better deals out there, but the product is confusing and frustrating, and insurers rely on that.”

Teresa McUsic’s column appears Saturdays. TMcUsic@Savvyconsumer.net

Saving on auto insurance

  • Shop around. Prices can vary significantly. Getting a quote is free. Check claims record, reviews and financial status before switching.
  • Consider a mutual insurer. These insurers are owned by the policyholders.
  • Raise credit score. Higher scores typically have lower premiums.
  • Raise your deductible.
  • For older cars, consider reducing collision or comprehensive coverage
  • Check out group coverage. Your company, professional organization, alumni group or business organization may offer group auto coverage at a lower rate.
  • Look for discounts. Good students, low mileage, defensive driving courses and combining auto with home or other policies can reduce rates.
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