Major Car Insurers Charge Moderate-Income Consumers with Perfect Driving Records More

Research shows that insurance prices align more with financial situation than accident, ticket history

Major Car Insurers Charge Moderate-Income Consumers with Perfect Driving Records More
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September 29, 2016

New research conducted by the Consumer Federation of America (CFA) has revealed that major auto insurers frequently charge moderate-income consumers who have perfect driving records more than high-income consumers with recent accidents.

The Results

The agency tested premiums offered by the five largest insurers in the U.S. in 10 cities across the country for drivers who have different socio-economic situations and driving records. The experiment yielded surprising results, including:

  • Upper-income drivers who have DUIs often pay less than moderate-income drivers who have no accidents or tickets on their record. In 70 percent (21 out of 30) of tests in which it was possible to make a comparison, basic liability insurance cost more for a moderate-income driver who had a perfect driving record than it did for a high-income driver who had a recent conviction for DUI.
  • Moderate-income drivers who have perfect records pay more for insurance than upper-income drivers who caused an accident in which someone was injured. In 53 percent of tests (20 out of 38), drivers with moderate amounts of income and clean records were charged more for insurance than drivers with high incomes who had recently caused an accident in which someone received a bodily injury.
  • Progressive and GEICO were the two companies that consistently charged drivers with high incomes and poor records less than drivers with moderate incomes and good records. These two companies charged more 78 percent of the time for a basic auto insurance policy premium for a moderate-income driver with a clean record than for a driver with a higher income and a recent accident or violation on her record. In contrast, State Farm was the company most likely to charge the good driver a lower rate than the driver with accidents or violations regardless of socio-economic status.
  • Good drivers with moderate incomes frequently pay more than do upper-income drivers who have numerous points on the records. In more than half the tests conducted—19 out of 36—a driver with moderate income and a perfect driving record was charged more for a basic insurance plan than was a driver with high income who had caused an accident and had been convicted of a speeding violation within the past 12 months.

"It is profoundly unfair that a driver with a moderate income and a perfect driving record is often charged more for auto insurance than higher-income drivers with DUIs, accidents and speeding tickets," said J. Robert Hunter, the director of insurance at the CFA and the former Texas insurance commissioner. "As long as state governments require drivers to buy insurance, they should require insurance companies to price their product based on how we drive, not who we are."

A survey conducted in June 2016 by ORC on behalf of the CFA showed that the majority of people believe that it is fair for vehicle insurance companies to set premiums using at-fault auto accidents and moving violations, but not using factors connected to economic status. The poll surveyed 1,000 Americans, more than four-fifths of whom said that they believed it was fair for insurers to take at fault traffic accidents (84 percent) and moving violations (85 percent) into account when pricing plans. However, few said that they believed it was fair for insurance companies to use consumers' levels of education (29 percent), marital status (32 percent), occupation (35 percent), lack of previous coverage due to not possessing a vehicle (30 percent), or homeownership (35 percent) when setting insurance premiums.

The Experiment

To conduct its research, the CFA requested online automotive insurance quotes for two drivers—one who had the socio-economic characteristics of a moderate-income American, and one who had those of an upper-income American—in 10 cities across the U.S. For each driver, the agency requested the price of the minimum liability policy required by law in that state, assuming the driver had a perfect record; then it requested quotes for basic coverage in which the driver reported different kinds of accidents and violations, e.g. an at-fault accident that resulted in bodily injury and a DUI conviction.

The agency made 600 coverage requests in all and received 464. Of the 136 requests that did not receive a quote, 28 involved the insurer refusing to quote a price online for a moderate-income driver but providing such a quote for an upper-income driver who had the same record. The insurer refused to quote a price to either driver in 60 other instances. Finally, in the majority of the other 48 requests, the insurance company seemed not to offer any policies in the required city.

"Insurers who sell policies to upper-income drivers, but not moderate-income drivers, with an accident or violation are engaging in disparate treatment," stated CFA's Hunter. "These insurers force lower-income drivers into even higher-priced, non-standard policies."

The insurers tested included Allstate, Farmers, GEICO, Progressive, and State Farm, and the cities included Atlanta, Baltimore, Chicago, Jacksonville, Jersey City, Los Angeles, Kansas City, Minneapolis, Oklahoma City, and Queens in New York City. CFA tested each for two female drivers residing at the same address, both of whom were 30 years old, had been licensed for 14 years, and were driving a 2006 Toyota Camry for 10,000 miles per year. The only differences between the drivers were personal characteristics that correlated with income.

Surprising Findings

The CFA found that, two-thirds of the time, a good driver who earns only a moderate income is charged more for a basic auto insurance policy than is a driver who earns a high income but has been convicted of a DUI within the past year. The companies offered an automotive insurance quote to both drivers in 30 instances, and the good, lower-income driver paid more in 21 of those instances.

Similarly, drivers with high incomes who had caused an accident that led to the bodily injury of a passenger in another car at some point in the past year were, on average, offered a lower premium than were drovers with moderate incomes and perfect records. Thirty-eight times the agency received quotes for the drivers, and the lower-income driver paid more 20 of those times, being charged an average of 11 percent higher premiums.

"If someone is convicted of drunk driving or caused a serious accident, they should absolutely pay more than someone with a perfect driving record," said Douglas Heller an insurance expert who conducted the research with CFA's Insurance Researcher Michelle Styczynski. "But as our research shows, insurance companies often charge moderate-income safe drivers a higher price despite how obviously unfair it is."

Furthermore, Progressive charged moderate-income drivers with clean records more than high-income drivers with recent at-fault accidents and/or moving violations 86 percent of the time, while GEICO did the same 70 percent of the time. Out of 100 quotes provided for the high-income driver, only in 22 instances did she pay more than the moderate-income one. It was only in Los Angeles where the good drivers paid less, due to California's strong consumer protection laws.

Drivers with clean records and moderate incomes were charged $1,539 for basic policies with GEICO and $1,982 with Progressive. The premiums changed significantly for drivers with high incomes and an accident and/or violation on their records: $1,269 with GEICO and $1,273 with Progressive.

"The data show that Progressive and GEICO are competing vigorously for the business of upper-income drivers regardless of their driving record, and they're subsidizing that competition by overcharging moderate-income drivers with clean records…. This is unfair discrimination in my estimation and illegal in all states," said Hunter.

Even drivers who have multiple points on the record often pay less than safe drivers as long as they have high incomes, the study shows. In 53 percent of instances (19 out of 36) in which it was possible to compare, drivers with both a recent accident as well as a violation on their records and who had high incomes were charged less for a premium than drivers with clean records but lower incomes. GEICO and Progressive followed this pattern consistently, but State Farm, Allstate, and Farmers rarely did so.

Taking Action

These findings indicate a need for regulators and policymakers through the U.S. to take action regarding how auto insurers price policies.

"All those states with mandatory insurance have a special responsibility to ensure fairness in the marketplace," stated Hunter. "At the very least, state insurance departments should immediately study these price inequities and, if confirmed by their research, eliminate them."