Quick, name one thing you really like about insurance.
OK, now name six things about insurance that qualify as dreadful — problems that should never exist and should be fixed immediately (but probably won't be).
Michael DeLong, a research associate at the Consumer Federation of America, issued himself that challenge recently and had no trouble coming up with his list. He wrote about his findings in a blog post on the CFA site, listing extraordinary premium increases, unfair pricing strategies, insurance companies turning their backs on communities, and the burden of government and lender mandates that require consumers to buy insurance.
In this excerpt of DeLong's blog post, we highlight the key issues he thinks consumers should be aware of and public officials should do something about.
Car insurance costs and big profits
Rising premiums and big profit announcements highlight a major problem: governments require consumers to buy insurance, but state lawmakers and regulators don’t do enough to keep it affordable.
Every state except New Hampshire requires drivers to purchase auto insurance, so states have a responsibility to make sure the coverage is affordable and consumers don’t experience unfair discrimination. But most state insurance regulators have not done enough to challenge insurance companies as they jack up prices well beyond the rate of inflation. They don’t reject excessive premium increases, they don’t aggressively fight unfair discrimination in insurance, and they don’t hold insurance companies accountable for unfairly delaying and denying claims.
Some state insurance departments put resources and expertise toward consumer protection, but many regulators have far too cozy a relationship with the insurance industry—often at the expense of consumers. Still other regulators take a hands-off approach to regulation, which leaves consumers without the help they need to stand up to insurance companies.
Prices based on questionable factors
Insurance companies charge consumers more for auto insurance based on socioeconomic factors that have little or nothing to do with driving. The companies use a consumer’s job title, education level, ZIP code or neighborhood, gender, marital status, homeownership status, and credit score to charge higher premiums, even if they have a perfect driving record.
The Consumer Federation of America’s 2023 report found that consumers with poor credit scores pay on average 115% more, or over twice as much, for auto insurance compared to consumers with excellent credit. A consumer can pay one penalty because of their blue-collar job, another penalty because they didn’t go to college, a third penalty because they are single, another if they are female, and the final and largest penalty because of their credit score.
Homeowners insurance is unaffordable for many
Rising homeowners insurance costs make insurance expensive or even unaffordable for many consumers. CFA's recent report on rising insurance costs found that from 2021 to 2024, American homeowners saw their premiums increase by $648, or 24% on average—a $21 billion price hike, well above the rate of inflation.
Premiums went up in 95% of ZIP codes.
As a result, many homeowners are struggling to afford insurance or even going without coverage altogether, leaving them on the hook for all the costs if their home is damaged or destroyed. As with auto insurance, CFA research has also shown that homeowners with poor credit scores pay about double the price for the same coverage sold to someone with excellent credit.
Efforts to prevent damage aren't always reflected in discounts
Mitigation efforts to reduce homeowners insurance claims can help, but they must be adequately funded; moreover, insurers must be required to pass along discounts to consumers. By strengthening their roofs against hurricanes, building their decks out of fire resistant materials, and taking other loss prevention measures, consumers can reduce their insurance risk and should lower their premiums, though they rarely do.
Because these home-hardening improvements are costly, many people, especially those living paycheck to paycheck, cannot afford them. Some states have created programs that offer grants to homeowners, often around $10,000, to strengthen their homes and lower their risk. The grant programs are excellent, but they need adequate funding so that vulnerable homeowners can get that help. Additionally, if consumers undertake these measures, insurance companies should be required to pass along premium discounts or rate reductions to consumers.
One lesson we’ve learned in recent years is that you can’t trust insurance companies to return savings to customers without oversight.
Climate change is driving up claims
Climate change is a major driver of rising insurance costs, and companies should stop funding fossil fuel projects that make the situation worse. Stronger and more frequent natural disasters are contributing to higher insurance costs, in the form of more devastating hurricanes, larger wildfires and a longer wildfire season, a widening of “tornado alley” and more severe storms in the middle of the country, and other catastrophic events.
Yet insurance companies continue to underwrite fossil fuel projects like oil pipelines and coal-fired power plants that contribute to climate change—and increase insurance prices. They also invest billions of dollars in the fossil fuel sector, profiting off a key source of climate change while down streaming the cost of increased risk to its policyholders through higher premiums and shabbier policies.
Consumers, politicians are starting to notice
Consumers, consumer advocates, and policymakers are paying increased attention to insurance. Higher insurance premiums, insurance company misbehavior, and company withdrawals have brought a lot of attention to the insurance market, creating a spotlight that provides consumer advocates an opportunity to press for badly needed reforms that will improve the current situation.
Consumers face huge problems in getting affordable and available insurance policies. But the Consumer Federation of America is fighting every day to make insurance more affordable and stop unfair discrimination. As the Dr. Seuss character the Lorax says, “Unless someone like you cares a whole awful lot, nothing is going to get better. It’s not!”
You can email DeLong at mdelong@consumerfed.org.