A survey by the Consumer Federation of America (CFA) reaches the surprising conclusion that major insurance companies frequently charge higher premiums to safe drivers than to those who recently caused an accident.
In two-thirds of the 60 cases studied, large auto insurers quoted higher premiums to safe drivers than to those responsible for an accident. And in more than three-fifths of the cases with these higher premiums, the premium quoted the safe driver exceeded the premium quoted the unsafe driver by at least 25 percent.
These higher prices for “good drivers” mainly reflect insurer use of rating factors such as education and occupation that, in a 2012 nationwide survey, over two-thirds of Americans said were unfair.
“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,” said J. Robert Hunter, CFA’s Director of Insurance and former Texas Insurance Commissioner.
“Policymakers should ask why auto insurers are permitted to discriminate on the basis of non-driving-related factors such as occupation or education,” he added.
“Unfortunately, the discriminatory practices of auto insurers mainly harm low- and moderate-income drivers,” noted Stephen Brobeck, CFA’s Executive Director. “This damage can be considerable since all states but one require drivers to carry auto insurance, and most Americans need a car to pursue work opportunities,” he added.
CFA priced policies in twelve cities using the websites of the five largest auto insurers – State Farm, Allstate, GEICO, Farmers and
Progressive – who together have over half the private auto insurance market.
It compared premiums quoted to two 30-year old women who each had driven for 10 years, lived on the same street in the same middle-income zip code, and sought minimum liability coverage required by that state.
But these two women differed in several important respects: One was a single receptionist with a high school education who rents, has been without insurance coverage for 45 days, and has never had an accident or moving violation. The other woman was a married executive with a Masters degree who owns a home, has had continuous insurance coverage, and has had an at-fault accident with $800 of damage within the past three years.
There were significant differences among the five major insurers. On the one hand, in every case Farmers, GEICO, and Progressive quoted the safe driver a higher premium than the driver causing an accident. (In several cases, companies refused a quote to the good driver but gave one to the accident-causer.)
On the other hand, in all twelve cities State Farm charged the good driver less. Moreover, in all twelve cities, the rates quoted by State Farm were
either the lowest (6 cities) or the second lowest (6 cities).
“With nearly one-quarter of the private passenger auto insurance business, State Farm dominates the market. If they can be a successful company without using highly discriminatory factors, other large companies should be able to do so as well,” Hunter said.
The full report is available on CFA's website.