Drivers Pay Higher Auto Insurance Rates Due to Economic Status, CFA Reports

CFA found that premiums jumped by an average of 59 percent when characteristics of the drivers were changed to reflect a lower economic status

Drivers Pay Higher Auto Insurance Rates Due to Economic Status, CFA Reports
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June 27, 2016

Do you think your auto insurance rate is purely a function of your driving ability? Think again.

The Consumer Federation of America (CFA) has released a new report indicating that auto insurance providers are assessing an individual's personal characteristics related to economic status, often resulting in an elevated premium, regardless of the customer's driving record. CFA 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 conclusions were based on an analysis of minimum limits liability premiums quoted to men and women in 15 cities by five of the nation's largest auto insurers.

The following variables were assessed in the group's study: level of education, occupation, homeownership status, ownership of a car during prior six months, and marital status. Despite having the exact same driving record and living at the same address, drivers pay higher premiums 92 percent of the time if they have a high school degree and a blue collar or hourly job, rent their home, have not owned a car (and had no auto insurance) for the past six months, and are unmarried. Each of these is associated with lower economic status.

"Insurance companies should judge you on how you drive, not who you are," said J. Robert Hunter, in a written statement. Hunter is the 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."

In a national poll conducted by ORC International in June 2016, most Americans believe that auto insurance premiums should be tied solely to driving safety record and accident history.

The practice of unfair premium charging is not equally distributed across the country. In Far Rockaway (Queens), NY, a customer with low economic status indicators will pay 97 percent more than his or her high-status counterpart. However, the difference in Los Angeles, CA is only 9 percent. This is because, under California's consumer protection laws, all the non-driving factors tested in CFA's report are prohibited from use in auto insurance pricing in California, with the exception of marital status.

In light of its findings, CFA has prepared a series of recommendations for regulators and lawmakers to protect consumers from the unfair pricing practices uncovered in its report. The central proposal is that states should enact legislation that emphasizes drivers' accident and ticket records and prohibits the use of non-driving related characteristics such as those discussed in the report.

"Drivers are required to buy auto insurance in all states but New Hampshire regardless of their economic status, which means that it is the duty of lawmakers and regulators to protect consumers from unfair pricing practices of the insurance industry," said Hunter. "They have, with only a couple of exceptions, completely failed to do their duty.