Consumers do not think it is fair for auto insurers to use level of education, occupation and lack of previous insurance in setting prices.
That’s according to findings from a national survey of more than 1,000 consumers released by the Consumer Federation of America (CFA), which opposes insurer use of the these and other factors it says are unrelated to driving and has urged state regulators to restrict their use.
CFA said that most major insurers use these types of non-driving factors and said these factors greatly increase 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. “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 survey interviewed 1,010 adult Americans in June (margin of error, plus or minus three percentage points). CFA’s 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 were State Farm, Allstate, GEICO, Progressive and Farmers, which write more than half the private passenger auto insurance market. The cities were Baltimore, Miami, Louisville, Houston and Los Angeles.
The analysis found 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. Twenty-five examples – involving five companies in five cities – were examined. In three examples – involving Farmers, Allstate and State Farm in Miami – the companies would not provide a quote. In the remaining 22 examples, 15 of the quotes exceeded $1,000, and eight 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 J. Robert Hunter, CFA’s director of insurance. California limits insurers use of non-driving factors to set premium levels.
CFA’s analysis considered the impact of seven non-driving factors on premiums. The five insurer websites each asked for information on four to seven of these factors, according to CFA.
In most of the 22 examples in which prices were quoted, changing these factors significantly lowered insurance premiums. In 12 examples, these premiums declined by about half or even more. In four examples, the premiums fell by at least 68 percent. (CFA said it assumed a good credit score for this consumer in all cases. If it had lowered the credit score, the rate differences would have been more extreme, according to the group.) 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.
According to CFA, State Farm relied the least on non-driving factors in setting premium levels. In two of its four priced examples, the premiums actually increased when the non-driving factors were varied.
The researchers asked consumers whether they thought it was fair for insurers to use each of 11 factors in pricing insurance. Consumers rejected six factors – gender, credit score, level of education, no previous insurance because the consumer did not own a car, occupation, and ZIP code of residence – which CFA says do not relate to a consumer’s driving history and result in a wide variation in rates.
In particular, residence in a moderate-income neighborhood or the lack of a college degree resulted in sizable premium increases, CFA said.
CFA said consumers approved of the use of four factors– traffic accidents, moving violations, number of years with a license, and miles driven – involve driving experience or frequency.
In almost all the 22 priced examples, adding an at-fault accident to the other changes increased quoted premiums. But in nearly all of these examples (with the exception of State Farm) these premiums were still considerably lower than those quoted for the moderate-income clerical workers who had a clean driving record.
“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. “And they reject factors unrelated to driving over which they have little or no control,” he added.
Hunter said only 31 percent favor the use of level of education, and 33 percent favor occupation, in setting prices. On the other hand, 87 percent favor the use of traffic accidents caused, and 85 percent favor moving violations, in determining premium levels.
TABLE 1: CONSUMER VIEWS OF AUTO INSURER USE OF SPECIFIC FACTORS TO SET PREMIUM LEVELS
Question: As you probably know, auto insurers use many factors to decide how much each driver is charged for their insurance coverage. How fair do you think it is for insurers to use each of the following factors in deciding on an auto insurance price for a driver?
Factors % Very or Somewhat Fair
- Traffic accidents caused 87%
- Moving violations, speeding tickets 85
- Number of years with a license 74
- Age 66
- Miles driven 61
- Location of residence 45
- Occupation 33
- No previous insurance because no car 32
- Level of education 31
- Credit score 31
- Gender 30
Source: Consumer Federation of America