In a perfect world we'd like to think that if we always drive responsibly and safely then that will be reflected in the price we pay for auto insurance coverage. And regretfully, that assumption has no basis in fact.
According to a report on auto insurance pricing from the Consumer Federation of America (CFA), the use of nondriving-related factors in rating drivers is especially costly to low- and moderate-income motorists, who often see higher costs for coverage even if they have a better driving record than richer, more educated counterparts.
Does that make sense?
The CFA study, which covered 60 insurance quote pairings gathered from the nation’s five largest insurers across 12 cities, used two sample profiles that shared some characteristics but differed socioeconomically.
Both were 30-year-old women living on the same street, seeking the same minimum liability requirements and had driven the same model car for 10 years. However:
–One was single with a high school education, rented her residence, lacked coverage for the past 45 days, was employed as a receptionist and had a clean driving record.
–The other was married woman with a master’s degree, lived in a home she owned, had no gap in coverage, was employed as an executive and was at-fault for an accident within the past three years that caused $800 in damage
According to the CFA’s quote comparison between the two profiles, the woman who was a safer driver was quoted a higher premium than her counterpart about 66 percent of the time.
Onlineautoinsurance.com says that the safer driver was also often quoted steeply higher prices; the price tag was bigger by at least 25 percent in about 60 percent of the cases where that safer driver was quoted pricier coverage.
J. Robert Hunter, director of insurance for the CFA, said the profiles’ differing socioeconomic characteristics show that poorer, less educated drivers fall victim to unfair pricing formulas used in the industry.
“State insurance regulators should require auto insurers to explain why they believe factors such as education and income are better predictors of losses than are at-fault accidents,” Hunter said in a statement. “Policymakers should ask why auto insurers are permitted to discriminate on the basis of nondriving-related factors such as occupation or education.”
The CFA recommended that regulators narrow the set of factors used in pricing to alleviate the burden of high costs for lower-income motorists.
What do you think? Should insurance companies be able to factor in education, professional background and your credit rating to put a price on the risk you represent as a driver?