Major auto insurance companies are charging good drivers as much as 47% more for basic liability Auto insurance if they don’t own their home, according to an analysis of premiums by the Washington, D.C.-based Consumer Federation of America (CFA).
Based on a sampling of insurance quotes across the country for a 30-year old safe driver, the CFA found that premiums averaged 7% higher — about $112 per year — for drivers who rent instead of own homes. Liberty Mutual penalized renters the most with premium hikes averaging $307 a year, or 19% more, for state-mandated auto insurance coverage.
Auto insurance companies’ use of homeownership status in pricing disadvantages low- and moderate-income Americans, the CFA said. Federal Reserve Board data show that the median income of renters in the U.S. was $27,800 in 2013 compared with $63,400 for homeowners.
“To raise people’s Auto insurance premium because they can’t afford to buy their homes unfairly discriminates against lower-income drivers,” said J. Robert Hunter, CFA’s insurance director and the former insurance commissioner of Texas. “A good driver is a good driver, whether she rents or owns her home. Insurance companies should not be allowed to target people based on homeownership status.”
The insurance industry, however, disagrees.
“The Consumer Federation of America provides ample evidence in its own study that homeowners have better loss experience than renters and that insurance companies are justified in giving them a discount,” said James Lynch, chief actuary of the New York City-based Insurance Information Institute.
“In cities all across the United States, a wide variety of insurance companies have each looked at their own proprietary data sets and independently reached the same conclusion — that homeowners have better loss experience and thus it’s only fair they get a break on rates,” Lynch said. “Each company independently submitted its analysis to insurance departments across the country, all of which verified each analysis by approving the rates each of these companies filed. And every time insurers tweak their classification plans, they once again test and prove that the discount is valid, and the insurance departments that approve these adjustments re-verify the validity of the discount.”
What CFA found
For the analysis, the CFA said it tested rates for minimum limits liability coverage in 10 cities from the nation’s largest insurers — State Farm, Geico, Allstate, Progressive, Farmers, Liberty Mutual and Nationwide.
The nonprofit said it used company websites to solicit two premiums in each city for a 30-year old female motorist who has a 2005 Honda Civic and a perfect driving record. The only characteristic that was altered during the testing was whether she owned or rented her home.
While the average increase for renters was 6%, there were several double-digit percentage increases around the country. For example, Allstate charged renters in Tampa 19% more than it charged homeowners; Liberty Mutual charged Baltimore renters 23% more and 26% more in Newark; and Farmers Insurance charged renters in Louisville 47% more (or $768) than homeowners for a basic Auto insurance policy.
Geico was the only company tested that did not consider homeownership status in any of the 10 cities. The only premium decrease for renters was found in Chicago, where Allstate lowered rates by 11% compared with premiums for homeowners.
Below are tables showing the annual premium changes in total dollars and percentage by company in each of the 10 cities:
Source: Consumer Federation of America.
In addition to the 10 cities included in the survey, the CFA tested rates in Oakland, Calif., and found that all companies charged the same premium to a good driver whether she owned or rented her home.
Consumer protection laws in California prohibit auto insurance companies from considering customers’ homeownership status or other socio-economic factors such as level of education or credit score when setting premiums, the CFA said. Instead, companies must prioritize driving safety record, annual mileage, and years driving experience when setting customers’ premiums.
Call for a change
The CFA said it is calling on state insurance commissioners and lawmakers to prohibit insurance companies from penalizing good drivers based on their status as renters.
According to CFA, homeownership status is a method by which insurance companies assess customers’ income rather than driving risk and should not be used as a factor in determining premiums.
“Virtually every state requires drivers to buy insurance, but we shouldn’t force them to buy a home in order to get the best price. State insurance commissioners and elected representatives should step in and stop this practice,” said CFA's Hunter.
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