Auto rate hinges on surprising factors
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Maintaining a safe driving record does not guarantee low automobile insurance rates.
The Consumer Federation of America found in a national survey released Monday that non-driving factors, such as a driver's education, occupation or marital status often play a bigger role in insurance companies determining how much to charge someone for car insurance, and these factors can increase premiums 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 low-income drivers," said Stephen Brobeck, executive director of the Consumer Federation of America in Washington, D.C.
"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 the minimum liability coverage for a 35-year-old woman with a good driving record in five cities. However, the analysis altered certain key characteristics such as marital status, education level, occupation, homeownership and other attributes.
The insurance companies that researchers compared included State Farm, Allstate, Geico, Progressive and Farmers Insurance Co., which together have more than half the private passenger auto insurance market. The cities they compared were Baltimore, Miami, Louisville, Houston and Los Angeles.
Most auto insurance premiums quoted for the woman were 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.
The Consumer Federation assumed the 35-year-old woman had a good credit score in all scenarios. For Geico, changing her marital status, level of education, occupation, continuity of coverage and ZIP code reduced her premiums by 86 percent in Miami and 68 percent in Louisville.
In 22 examples comparing the five companies and the five cities, 15 of the quotes for the hypothetical 35-year-old woman exceeded $1,000 and eight of the quotes exceeded $2,000. 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," said Robert Hunter, the federation's director of insurance and the former Texas insurance commissioner. "California prohibits or limits insurers from using non-driving factors to set premium levels."
In Pennsylvania, non-driving factors are not the primary factors that insurance companies look at to determine risk, according to Roseanne Placey, a spokesperson for the Pennsylvania Insurance Department.
"They look at the individual, the car they drive, prior accidents and the basic driving record," Ms. Placey said. "Age also is used to determine risk. Insurance companies look at a variety of factors to see if they believe in any way it determines risk. And, if they believe it determines risk, they have to show that data to us."
This is the third report that the federation has released this year examining the rates auto insurers charge low-to-moderate income drivers.
The organization has concluded that auto insurance is the biggest barrier to low-and moderate-income drivers operating a car, not the cost of the car itself. Many people in this category who need a car to keep a job are forced to drive illegally without insurance due to the high insurance premiums.
A survey by the Consumer Federation in June found auto insurers charge high and variable rates for minimum coverage to good drivers from moderate income areas. In January, the organization found that the nation's poorerst drivers are being charged unfairly high auto insurance premiums because of discriminatory practices.
Each survey on unfair auto insurance rates was released with a strong appeal to state insurance commissioners to do something to change the system.
In the latest report, Orc International surveyed 1,010 adult Americans and found the majority feel it is unfair for insurers to use non-driving criteria to set premium rates.
Only 31 percent favor insurance companies using a driver's level of education to determine rates and 33 percent favor using occupation in setting rates. On the other hand, 87 percent favor the use of traffic accidents caused and 85 percent favor musing moving violations to determine premium levels.
First Published September 25, 2012 12:00 am