Advocates: Auto insurance hurts poor
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The Consumer Federation of America charged Monday that the nation's poorest drivers are being charged unfairly high auto insurance premiums because of discriminatory practices and the organization called on state insurance regulators to do something about it.
"Our research shows evidence of unfair and discriminatory treatment of these families," CFA executive director Stephen Brobeck said in a conference call with reporters after releasing the 26-page report.
Low- and moderate-income families earning less than $37,000 pay higher premiums than more affluent households because of rating factors such as where they live, occupation, education and credit rating, the consumer group said.
While all 50 states prohibit insurers from setting insurance rates based on income, "We think these questionable factors are surrogates for income," CFA director of insurance Robert Hunter said.
Mr. Hunter gave an example of a single man in St. Louis, age 30, accident free, driving a Ford Taurus 20 miles per day and buying basic insurance coverage. If he had an MBA degree and lived in an affluent suburb, his rate was $558 a year. By changing his education to high school graduate, his rate rose by $71. If he became unemployed, the rate jumped another $84. If he moved into the city, his rate rose $347. If he paid premiums on an installment basis, the rate rose $60. The rate increased another $638 if he had a period where he was uninsured and another $337 if he did not have a car for a time.
Altogether, the changes drove the man's total premium to $2,095, the consumer advocacy group said.
"Use of these proxy factors for income should not be allowed," Mr. Hunter said.
Because of the high costs, the CFA estimated that up to one-third of low- and moderate-income vehicle owners can't find affordable insurance and are forced to drive without state-mandated coverage. Others simply can't afford a car.
Insurance needs to be more affordable for low-income residents because relying on public transportation to get to work, school or the grocery store typically puts people at an economic disadvantage, the consumer group said.
"We strongly believe that as a society we must figure out a way for lower income families to purchase liability insurance" so they don't face the choice of breaking the law or giving up job opportunities provided by a car, Mr. Brobeck said.
Jim Whittle, chief claims counsel for the American Insurance Association, said different insurers use many different variables to price insurance. "The most important thing from our perspective is that rates need to reflect risk," he said.
For example, rates might differ according to ZIP code to reflect a larger population or more vehicles on the road, which equates to increased risk for liability claims, Mr. Whittle said.
When asked why a driver's education would affect rates, he said he wasn't sure the CFA's example was accurate.
"There are hundreds of insurers who could be using hundreds of variables," he said, adding that consumers should shop around for the best deal.
Still, the Consumer Federation of America contended that insurers have not adequately demonstrated that certain factors reflect risk.
On the flip side, one important risk-related factor -- annual mileage -- is largely ignored by insurers to the detriment of lower income families who typically drive far fewer miles than higher income households, the consumer group said. "The lower risks associated with fewer miles driven are not adequately recognized," the CFA said.
The group said that state insurance regulators should do more to ensure that mandated coverage is fairly priced.
Besides working to eliminate discriminatory practices, states should lower the minimum amount of liability coverage required for low-income drivers because they do not benefit from the coverage, the CFA said.
Low- and moderate-income drivers "are effectively judgement proof because they have few or no financial assets," the CFA said. "Liability coverage protects only other drivers, many of whom carry uninsured motorist coverage" that would cover claims.
Mr. Hunter said Pennsylvania's minimum coverage requirements are already fairly low compared to most states, except for California, which offers special low-cost liability coverage for low- and moderate-income residents.
The Pennsylvania Insurance Department, which reviews and approves auto insurance rates in the state, declined comment on the CFA's report Monday because the department had not seen the underlying data, spokeswoman Melissa Fox said in an email.
She said consumers having difficulty finding affordable coverage should contact the insurance department at 1-877-881-6388 or visit www.insurance.pa.gov .
"Pennsylvania hosts one of the most competitive auto insurance markets in the country," Ms. Fox said. "Consumers in all regions of Pennsylvania should have multiple shopping options."
To read the CFA report go to www.consumerfed.org/news/450 .
First Published January 31, 2012 12:00 am
