Some motorists with high incomes but bad driving records may pay less for car insurance than lower-income consumers with pristine records, a new analysis has found.
Using websites for five major insurers in 10 big cities, researchers with the Consumer Federation of America, an advocacy group, obtained quotes for two hypothetical drivers with different socioeconomic attributes.
The analysis found that in 20 of 38 tests (53 percent), a moderate-income driver with a clean record was charged more for basic auto liability insurance than a high-income driver who caused an accident in which someone was injured.
The auto insurance industry, however, criticized the report as “flawed” and said that all the underwriting factors used by insurers “are proven to increase the accuracy” of predicting loss.
The researchers requested 600 quotes for coverage and received 464. In some instances, an insurer did not offer policies in a particular city. In other cases, the website declined to offer a quote for the lower-income driver. In others, a company would not provide a quote for either driver.
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The analysis also found that in 21 of 30 tests (70 percent) in which a comparison was possible, a moderate-income driver with a clean record was quoted a higher rate for basic coverage than a high-income driver with a recent drunken-driving conviction.
“It is profoundly unfair,” J. Robert Hunter, director of insurance for the consumer federation, said in a call with reporters. The organization opposes the use of nondriving-related factors in setting rates for auto insurance, given that minimum liability coverage is required most states.
David Snyder, vice president of policy development and research with the Property Casualty Insurers Association of America, said insurers did not consider income in setting auto rates. Insurers consider numerous criteria, he said, like a driver’s age and driving history, because they help in the proper pricing of premiums. “We use a factor because it predicts risk,” he said.
Mr. Snyder also said the comparison of the two hypothetical drivers was flawed because only the moderate-income driver was assigned, as a characteristic, a gap in coverage — she lacked insurance for the previous six months because she did not have a car. Such a gap would generally affect quoted premiums, regardless of the driver’s other attributes, he said.
The federation, however, says that socioeconomic factors considered by insurers to set rates, such as occupation and education, are proxies for income. In its analysis, the group assigned one of the hypothetical drivers certain attributes typical of an upper-income American, including having a master’s degree and a job as a bank executive; it gave the other a high school diploma and work as a bank teller. (The “tested” drivers shared certain basic characteristics: Each was female, 30 years old, licensed for 14 years and drove a 2006 Toyota Camry 10,000 miles a year.)
The study found that quotes varied among the insurers — Allstate, Farmers, Geico, Progressive and State Farm. State Farm was the most likely to charge the good driver less, regardless of socioeconomic status, the analysis found.
Progressive and Geico, the report said, were more likely to charge upper-income bad drivers less than good drivers with moderate incomes. In Queens, for example, Progressive quoted $6,404 for the moderate-income clean driver and $3,020 for an upper-income driver with a drunken-driving conviction. Progressive declined to comment.
Geico referred a request for comment to the Insurance Information Institute, which publishes a list of criteria used to set auto rates.
James Lynch, chief actuary with the Insurance Information Institute, an industry group, said the researchers’ methodology did not necessarily reflect what actually happened in the marketplace. For instance, he said, it was difficult for someone with a drunken-driving conviction to obtain coverage at all, never mind at a rate lower than that of a safe driver.
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Doug Heller, an insurance expert with the federation and an author of the study, said he agreed that it was harder for a driver with an alcohol conviction to find coverage but added that it was generally easier than it once was to get insurance with a bad driving record.
Los Angeles was the only market in which the safer but less affluent driver consistently paid less for coverage than the wealthy driver with the bad record, the study found. Mr. Heller said that was because California had strong consumer protections governing auto insurance rates. The state, for instance, explicitly bars the use of a driver’s previous insurance coverage history in setting rates, he said.
Here are some questions and answers about auto insurance rates:
Can I obtain rate information from my state’s insurance department?
Most state insurance departments have websites that offer estimated premium ranges as well as complaint data, said Elizabeth Renter, who recently conducted an analysis of the sites’ offerings for the financial website NerdWallet. But states differed widely in the information they made available, she said, and how accessible it was to consumers. Texas’ site scored at the top of the ranking, while New Mexico’s scored at the bottom.
How can I find the best auto insurance rate?
The industry and consumer advocates agree that shopping around and getting quotes from several insurers is important in finding the best price for the coverage you need.
What if I have a good explanation for a gap in my insurance coverage?
Mr. Snyder said one of his concerns with the federation’s study was that it did not reflect the “real world” of what happened after the consumer obtained an online quote. If, for instance, a veteran did not have insurance for a time during a military tour of duty, he or she should discuss the situation with the insurer, he said. “If you have an explanation,” he said, “bring it up with the company.”
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Article source: http://www.nytimes.com/2016/09/29/your-money/income-not-driving-record-may-determine-auto-insurance-cost.html?partner=rss&emc=rss
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