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Auto insurance rates rise by more than half for low-income families

Posted July 5

Those judged to be of lower economic status pay higher auto insurances rates, according to a Consumer Federation of America study. (Deseret Photo)

For those already struggling to make a living, auto insurance doesn't make it any easier. A recent study found that its premiums are higher by 59 percent, or $681 per year, for those of lower income and economic status.

The Consumer Federation of America looked at the minimum limits liability premiums given online to men and women in 15 cities, from five of the nation’s largest auto insurers — GEICO, Progressive, Allstate, Farmers and State Farm. Five factors were examined for their effect on insurance price: education level, occupation, homeownership status, current possession of auto insurance and marital status.

The drivers used in the study all were 30 years old, licensed for 14 years, had no accidents or violations, drove a 2006 Toyota Camry and put 10,000 miles on it each year. And the same home address was used for each city.

The study uncovered that even given the same driving record and same address, those who had a high school degree and a blue-collar or hourly job, rented their home and were unmarried faced higher premiums 92 percent of the time, with about 20 percent paying more than double that of their higher-status counterparts. It also found that where the average premium for drivers of high economic status is $1,144, those of low economic status pay $1,825 a year.

Only three times, out of the 300 drivers tested, were those of lower economic status paying less than those of higher status, according to the study.

“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,” said J. Robert Hunter, CFA's director of insurance, in the press release.

Other findings include that GEICO and Progressive charged the largest average percentage increases (92 percent for the former and 80 percent for the latter) to drivers of lower economic status, while Allstate and Farmers charged the largest average annual dollar increases ($915 for the former and $900 for the latter). State Farm charged smaller increases at 13 percent, or $217 per year, according to the press release.

Business Wire ran a statement from Property Casualty Insurers Association of America, which has almost 1,000 member companies, that acted as a rebuttal to the study’s results.

The released statement argued that the study failed to grasp that all factors, including those studied, were used because they allowed for more accuracy in assessing the risks of insuring a driver. It also stated that these factors had been proved to increase accuracy, but exact examples of this proof were not given.

Dave Snyder, vice president of policy for Property Casualty Insurers Association of America, told Consumer Reports that pricing wasn't based on socioeconomic factors, but these risks of loss.

Factors such as the ones studied were used because relying solely on motor vehicle records would mean relying on inaccuracies, he said to Consumer Reports. For example, motor vehicle records don’t mention violations that are legally dismissed when offenders attend traffic school, Consumer Reports noted.

“Consumers want insurance to be based on the likelihood of someone having an accident or filing a claim,” the PCI said to Business Wire.

PCI also stated that CFA did not focus on many factors that can bring down insurance rates, such as miles driven and usage-based insurance.

The blog credit.com reported that Hunter and Doug Heller, a co-author of the study, admitted during a tele-press conference call that the study did not take into account how a customer’s credit score would impact a premium. The study noted that when insurers ask for a social security number, as they typically do, it gives insurers a way to incorporate credit scores into a premium.

Social security numbers were not given to insurers in the study, so the credit scoring was instead set at the default setting for all policies.

But Heller told credit.com that if the study had included the credit scores, the discrepancies would have been “a lot worse." The study documents cited a 2015 Consumer Reports finding that premiums were significantly higher for those with low credit scores.

Contact the reporter at smanderson@deseretnews.com; Or follow her on Twitter at @Sarahsonofander.

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