Consumers are often shocked to learn that their car insurance rates are based on more than just their driving record, and now a survey by the Consumer Federation of America (CFA) confirms that consumers find it unfair that insurers useÂ factors such as level of education, occupation, and lack of previous insurance in setting prices.Â
CFA found in a separate analysis that most major insurers use these types of non-driving factors, which greatly increases premiums for low- and moderate-income drivers, often by more than 100 percent.
"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," said Stephen Brobeck, Executive Director of CFA.Â "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."
The analysis of auto insurance premiums, which used the websites of the five largest auto insurers, priced minimum liability coverage for a 35-year old woman with a good driving record in five cities, while altering characteristics such as marital status, educational levels, occupation, homeownership, and other attributes.
The companies included in the study were State Farm, Allstate, GEICO, Progressive, and Farmer's, which together have more than half the private passenger auto insurance market.Â The cities studied were Baltimore, Miami, Louisville, Houston, and Los Angeles.
The survey was undertaken for CFA by ORC International, which interviewed 1010 adult Americans in June of this year (margin of error, plus or minus three percentage points). Â Â
High premiums for unmarried clerical worker
Like CFA's survey of premiums for a moderate-income man and woman with good driving records, released last June, the new analysis reveals that most premiums quoted for the woman remain high when she is single, a renter in a moderate-income area, a high school graduate, a bank teller or clerical worker, and lacking continuous insurance coverage.Â
Twenty-five examples - involving five companies in five cities - were examined.Â In three examples - involving Farmer's, Allstate, and State Farm in Miami - the companies would not provide a quote.Â In the remaining 22 examples, 15 of the quotes exceeded $1000, and eight exceeded $2000.Â However, four of the five companies quoted premiums ranging between $616 and $810 in Los Angeles.
"The lowest rate quotes are in California because it regulates insurance premiums more effectively than any other state," noted J. Robert Hunter, CFA's Director of Insurance and former Texas Insurance Commissioner.Â "California prohibits or limits insurers from using non-driving factors to set premium levels," he added.
Lower premiums for married professional
CFA's analysis considered the impact of seven non-driving factors on premium quotes.Â The five insurer websites each asked for information on four to seven of these factors.
In most of the 22 examples in which prices were quoted, changing these factors significantly lowered insurance premiums.Â In twelve examples, these premiums declined by about half or even more.Â In four of these examples, the premiums fell by at least 68 percent.Â (CFA assumed a good credit score for this consumer in all cases.Â If it had lowered the credit score, the rate differences would have been more extreme.)Â
For GEICO, changing marital status, level of education, occupation, continuity of coverage, and the ZIP code reduced premiums by 86 percent in Miami and 68 percent in Louisville.
State Farm relied the least on non-driving factors in setting premium levels.Â In fact, in two of their four priced examples, the premiums increased when the non-driving factors were varied.
In the CFA survey, ORC International asked respondents whether they thought it was fair for insurers to use each of eleven factors in pricing insurance.Â All six factors rejected by consumers - gender, credit score, level of education, no previous insurance because the consumer did not own a car, occupation, and ZIP code of residence - do not relate to the consumer's driving history and resultÂ in Â a wide variation in rates. Â Â
In particular, residence in a moderate-income neighborhood or the lack of a college degree resulted in sizable premium increases, which may discriminate against moderate-income drivers. Â On the other hand, four of the five factors approved by consumers - traffic accidents, moving violations, number of years with a license, and miles driven - involve driving experience or frequency.Â And the remaining factor, age, is related to years of experience.
"Consumers strongly favor the use of factors related to driving, over which they have some control, in the pricing of auto insurance," said CFA's Hunter.Â "And they reject factors unrelated to driving over which they have little or no control," he added.Â
For example, only 31 percent favor the use of level of education, and 33 percent favor occupation, in setting prices.Â On the other hand, 87 percent favor the use of traffic accidents caused, and 85 percent favor moving violations, in determining premium levels.
A broad coalition of consumer, civil rights, and labor groups has written to insurance commissioners urging them to evaluate auto insurance premiums charged to low- and moderate-income drivers.Â
In a lengthy report released last January, CFA found that most lower-income families need a car to take advantage of economic and other opportunities, yet because all but one state require the purchase of liability coverage, high insurance premiums act as a significant barrier to pursuing these opportunities.
"Low- and moderate-income families who are disadvantaged by insurer pricing policies need affordable liability coverage so they can drive legally," said CFA's Brobeck.Â "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's January report suggested several steps insurance commissioners could take to make rates fairer, lower, and more affordable:
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.Â California has such a program, with rates that are usually lower than $300 a year that cover the program's costs with no subsidy from other drivers.
Urge state legislatures to lower minimum liability coverage and make certain that insurers are charging fair rates for this coverage.