Rating factors that have little to do with an individual's driving abilities appear to have considerable bearing on the price consumers pay for auto insurance, a report from Consumer Federation of America asserts.

CFA also says the rating factors in question discriminate against low- and middle-income drivers.

The CFA released its third report this year examining the affordability of auto insurance and its impact on moderate income individuals' mobility and access to better paying jobs.

In this latest report, the consumer-advocacy group examined how non-driving rating factors can affect the cost of auto insurance, increasing the price of coverage by as much as 50 percent or more depending upon location and insurer.

“The use of these factors clearly discriminates against low- and moderate-income drivers, which includes single clerical workers with less education who rent in moderate income areas, for example,” said Stephen Brobeck, executive director of CFA, during a press conference.

The report examined the price of minimum-liability insurance for a 30-year old woman working as a bank teller, with a clean driving record, high school education, and insurance coverage that lapsed 15 days ago.

Quotes were sought from the websites of the five largest insurers in the United States in the cities of Baltimore; Miami; Louisville, Ky.; Houston and Los Angeles. A quote was obtained for the individual under the standard information provided. Then new quotes were obtained adding five different rating factors:

• Married.

• Homeowner.

• Professional.

• No break in coverage.

• Higher-income zip code.

With each factor, the price of insurance declined, and when all five rating factors were added to the quote, the change in price was as high as 73 percent.

That was the case for Progressive, with a quote in Baltimore. The insurance quote for the driver was $2,696 before the rating factors were added. With all five rating factors, the price dropped to $718.

Robert Hunter, director of insurance for CFA, points out that, in some cases when a chargeable accident was added to the rating factors, insurance was still less than it was for the driver who did not get a discount for the five rating factors. In the case of Progressive again, the Baltimore driver, with a chargeable accident and the five rating discount factors received a quote of $1,022, $1,674 less than the initial quote.

“Charging almost $2,000 more for these factors is patently unfair and, as an actuary, actuarially unsound,” says Hunter. “I can't stress strongly enough how important it is for each state and insurance commissioner to fully investigate the insurance options available to low and moderate income families in their states to fully address this critical issue, since only state insurance commissioners and state legislators can mitigate this injustice.”

The report also includes a survey of 1010 adult Americans performed by CFA and ORC International asking what they thought about the use of specific factors to set auto insurance premiums.

While the majority says they thought the use of traffic accidents, moving violations, number of years licensed and age were legitimate factors for determining the price of insurance coverage, non-driving factors received a resounding thumb down.

Sixty-seven percent or more of the public believe occupation, no previous insurance because there was no car, level of education, credit score and gender are not fair factors for determining the price drivers should be paying for their insurance.

Hunter questioned whether states are doing enough to make auto insurance affordable for lower income drivers, and indicated that many should take a look at California's program of auto insurance for low income families that is lower than $300 a year and does not require a subsidiary from other drivers.

NEXT PAGE: INDUSTRY RESPONDS

Responding to the report, Willem Rijksen, a spokesman for the American Insurance Association, says in an e-mail, “Insurers use a wide variety of proven factors to assess risk and determine policyholder rates which are approved by state insurance regulators. The use of these factors, such as credit-based insurance scoring, location of the vehicle, driver experience, and traffic citations, helps insurers to more accurately price risk. Generally speaking, the more consumers know about these helpful tools, the more receptive they are to them given their broad overall benefit. As the study's own data points out, auto insurance remains a very competitive market and consumers are well-advised to shop around to find the coverage that best meets their individual needs.”

Alex Hageli, director of personal lines for the Property Casualty Insurers Association of America comments, “The [CFA] has once again found an excuse to trot out the same old series of mostly misguided public policy prescriptions they've been pushing for years, this time in association with the release of a national survey of consumer attitudes on insurance pricing. Their approach would be counterproductive and hurt most motorists, resulting in higher costs and fewer choices for all consumers.”

He argues the survey results are not surprising because consumers and legislators do not understand “why insurers use certain factors to determine premium.” However, when they do their attitudes change.

“Creating an environment of robust competition is the best step that state insurance commissioners can take to address the availability and affordability of insurance,” he says.

Neil Aldridge, senior vice president for state and policy affair for the National Association of Mutual Insurance Companies says, pointing to consumer survey portion of the report, says that rating factors should not be “regulated by popularity,” adding, that “is not exactly a precise way to measure risk.”

If consumers understood that the discounts are associated with risk, their answers would change, he says.

“We've built our entire rating system correlated to risk,” says Aldridge.

Update: This story was updated with comments from the Property Casualty Insurers Association of America and the National Association of Mutual Insurance Companies.

Special Reports /

CFA: Non-Driving Rating Factors Unfairly Weighted in Auto Quotes

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