Three Major Auto Insurers Regularly Charge Higher Prices to Good Drivers Previously Insured by Non-Standard Insurers

CFA tested whether premium quotes from seven of the nation's largest auto insurers in 20 cities differed if customers switched from "non-standard" insurers

Three Major Auto Insurers Regularly Charge Higher Prices to Good Drivers Previously Insured by Non-Standard Insurers
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May 22, 2017

New research by the Consumer Federation of America (CFA) in Washington D.C. shows that auto insurance giants Allstate, Farmers, and American Family often charge nine to fifteen percent higher premiums to good drivers previously insured by smaller, "non-standard" insurers than those who had coverage from State Farm or other primary competitors.

"This practice especially penalizes motorists in lower-income communities, leaving them with few options outside of lesser-known and often higher-priced insurance companies," said J. Robert Hunter, CFA's Director of Insurance and former Texas Insurance Commissioner.

Using company websites, CFA tested whether premium quotes from seven of the nation's largest auto insurers in 20 cities differed if customers switched from "non-standard" insurers rather than from State Farm or another large insurer. CFA only sought quotes for a customer who had a perfect driving record, regardless of their prior carrier.

In the majority of cities where quotes were available, three of the companies—Allstate, Farmers, and American Family—used a customer's prior insurance company as a factor in determining the premium charged. In those cities:

Allstate charged 15 percent ($235) more on average to good drivers previously covered by non-standard auto insurers such as Safe Auto Insurance and Equity Insurance Co. than if they had been previously insured by State Farm.

Farmers charged nine percent ($260) more on average to customers coming from non-standard companies, including Titan Insurance and Access Insurance Company, than those hailing from State Farm policies.

American Family Insurance, the nation's ninth largest auto insurer, charged nine percent ($166) more on average to customers previously with non-standard carriers, such as Direct General and Safeway Insurance.

Although Allstate raised rates on customers coming from non-standard companies in twelve of the cities tested, it did lower rates for those customers compared with former State Farm customers in three cities (Pittsburgh, Seattle, and Tampa). CFA's testing also found that several other large companies—State Farm, Progressive, and Liberty Mutual—did not hike rates in response to customers' prior companies. GEICO charged as much as 72% more to customers in Tampa who were previously insured by a non-standard carrier—but GEICO did not use prior company to price customers in any other city tested by CFA.

"It's one thing to charge higher premiums to people with violations and accidents in their past, but it is unfair to punish a good driver simply because of where she previously purchased insurance," said CFA's Hunter. "After big insurers underserved many of America's poorer communities, forcing drivers to turn to lesser known companies to buy coverage, the same big insurers later penalize them, effectively sentencing them to higher premiums for life."

According to CFA, "non-standard" insurance companies ostensibly sell coverage to the riskiest customers, but a long history of the larger, "standard" insurers refusing to market to or serve low-income and predominantly minority communities has resulted in many good drivers being placed with these smaller market players.

CFA says that non-standard insurers sell about $7.5 billion in auto insurance in the U.S. accounting for about seven percent of the entire auto insurance market.