Many good drivers pay higher insurance premiums because of their credit history and other factors that have nothing to do with their driving record, according to Consumers Union, the advocacy division of Consumer Reports.
“Auto insurance premiums should be based on your driving record, not your credit score, occupation, or whether you graduated from college, said Norma Garcia, senior attorney for Consumers Union. “But many insurers rely heavily on these non-driving factors when pricing insurance and good drivers may be unfairly penalized with higher premiums.”
A recent Consumer Reports analysis found that credit histories might have more to do with how much consumers pay for auto insurance than any other factor, including arrests for drunken driving.
The analysis was part of a review of more than 2 billion price quotes for sample drivers obtained in August and November 2014 from up to 19 companies in each state across all general zip codes in the country. Consumer Reports found that single drivers paid a median of $190 more for merely having “good” credit compared to those consumers with the best credit. That difference was $1,200 for consumers with “poor” credit scores.
Consumer Reports also found that, for those states that don’t prohibit the use of credit scores, more than 75 percent of the premiums were higher for good drivers with poor credit than those with a drunken driving arrest and excellent credit. The median difference was $700. In some states, they paid significantly more.
The insurance industry’s use of credit scores, occupation, and education level for setting premiums has an even more negative impact on low-income consumers, African Americans, and Latinos. Government data and other research show that these rating factors closely correlate with race and income. Insurers are prohibited from considering race and income to price insurance in all states.
A report by the Consumer Federation of America found that good drivers in mostly African American communities pay much more for auto insurance than good drivers in mostly white neighborhoods. The report found that in communities where more than three-quarters of the residents are African American, premiums are 70 percent higher, on average, than in those communities that are less than one-quarter African American – $1,060 compared to $622.
“It seems clear that low-income consumers and people of color are hit hardest by insurance pricing based on socioeconomic factors instead of driving records,” said Garcia. “It’s time for regulators to bring some fairness to the insurance market by banning these practices.”
Consumers Union is urging reforms, including:
- State insurance commissioners should ban insurers from using non-driving factors when setting premiums, including credit data/scores; education level; occupation; marital status; and price optimization – the practice of charging higher rates to policyholders whose shopping history shows they may fail to shop around for a better deal.
- The National Association of Insurance Commissioners should conduct a market survey to learn more from insurers about their rating practices involving non-driving factors.
- The Federal Insurance Office should collect data from insurers to evaluate auto insurance access and affordability.
