Ask Stacy: How Can My Car Insurance Go up Like This?

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Here’s an email I recently received: Have you had a similar experience?

Hi Stacy,
Have you written any articles about the latest auto insurance industry scam? I have been with [redacted] for 19 years–three or four years ago a speeding ticket (79 in a 65mph zone) and in the last year two fender benders backing out of a parking space. As expected my rates went up $45/month. While dealing with [redacted] I noticed that my ex husband had never been removed from the policy. I have been divorced for 15 years.

When I requested that his name be removed, I was hit with another $55/month increase. It seems that I am a single divorced woman and that makes me a higher risk?!! Where is that written in the insurance rules? First, I have tried to fight it completely unsuccessfully then I started realizing that many women have run into this type of discrimination. Any advice? I really want this scam to be brought out to the state insurance commissioners. At this time, they are not listening.

Thanks,
Linda

Here’s your answer, Linda!

Suppose you and I got together and started a car insurance company. Even before we start issuing policies and taking in premiums, we’re going to hire people called actuaries to look for patterns and assess risk. Do teenage boys have accidents more often? Divorced women? Drunk people? People with lower credit scores? Red-headed, left-handed people of Irish decent? It’s the actuary’s job to study the numbers and report their findings to us.

Our goal is take in as much money in premiums as possible and pay out as little as possible in claims. So it behooves us to find out if certain categories of customers are more likely to have accidents than others. If we can find a pattern that suggests one group is more likely to submit claims than another, we charge them more. And with certain exceptions, there are no rules that say we can’t.

This is how insurance works. But while some categories of high-risk drivers are obvious – those with a drunk driving conviction, for example – others aren’t. Why should people with low credit scores be more likely to wreck their cars? Why should a divorced woman like Linda be a higher risk than one still married? The insurance company doesn’t have to explain it, nor do they care. They look at the data, and if the data suggests single women cost more to insure than married women, they’re simply going to charge them more.

But isn’t that discrimination? No. Discrimination is treating people differently arbitrarily. In other words, charging people of a certain sex, race, or religion differently for subjective, rather than objective, reasons. If I pay more for life insurance than Linda does because the CEO of an insurance company hates men, that’s discrimination. But if the insurance company can prove that men are statistically more likely to die earlier than women, charging me more than Linda isn’t discrimination, it’s good business.

So what’s Linda to do? You probably already know the answer. Shop. That’s why we have an insurance shopping tool and why Linda – and you – should use it. Because not all insurance companies are the same. Due to her recent fender-benders, Linda’s company may no longer want her business. Rather than simply canceling her coverage, however, they’re going to jack up her rates and see if she’ll put up with it.

But there may be another insurance company out there that’s trying to grow its client base and wants Linda’s business despite her accidents. There may be companies that have looked at their data and drawn the conclusion that women who have been divorced for 15 years drive just as safely as those that are still married. The only way to find out is shop.

If Linda finds that all insurance companies are as inflexible as her current provider, she should wait until her tickets and accidents fall off her record – typically three years – and try again. But if you’re paying more than you think you should for insurance or anything else, the answer isn’t to get mad. It’s to get even by taking your business elsewhere.

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Comments & discussion

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  • Anonymous

    Funny how insurance companies are allowed to make actuarial distinctions between customers. For everyone else, this is called “profiling.”

    • http://www.facebook.com/people/John-Smith/100002079155557 John Smith

      Many laws apply to governmental behavior and not to individuals, the Bill of Rights for instance. Profiling has to do with detaining people and the government (the police) can only do this based on a reasonable suspicion. They can only arrest based on probable cause. The laws against profiling hold that a profile is not a reasonable suspicion or probable cause.

  • http://www.facebook.com/people/John-Smith/100002079155557 John Smith

    I must disagree. “Discrimination” is differentiating people for whatever reason, arbitrary or not, usually because they belong to a class of some sort. We rightfully discriminate all the time, against minors for driver’s licenses and in selling tobacco, alcohol, guns; we discriminate against men and women using the other’s public restrooms.
    “Invidious discrimination” is bad discrimination, when the class is identified as a prohibited basis for discrimination such as race, class, based on age, gender, sexual orientation, religion,

    Acceptable discrimination usually has to have some rational basis. So if you have a poor driving record, are in a group with some disability that effects driving or reflects irresponsible behavior (e.g credit rating) they might be able to use that as a basis for discrimination.

    The question then is, “is it invidious discrimination to discriminate against divorced people in setting insurance policies?” It varies by state law. I found this chart: http://www.unmarriedamerica.org/ms-statutes.htm
    Generally though from what I’ve found “Car insurance is a unique field in that it openly “discriminates” on the basis of age, gender, marital status, and residence.”

    Note that giving a “married discount” is the same thing as discriminating against a single or divorced person. And that it is further discrimination to differentiate between “single” and “divorced” people.

    • Anonymous

      How exactly are you disagreeing? You point out the distinctions (discrimination?) our society makes between what is considered “good” and “bad” discrimination.

      Then you say “Car insurance is a unique field in that it openly ‘discriminates’ on the basis of age, gender, marital status, and residence.” That was rather the point I was “driving” at with my original comment. Insurance companies can legally discriminate (i.e., make distinctions) in ways that are illegal for everyone else.

      So when is discrimination good or bad? For example, age discrimination is bad (hiring in general), except when it is good (child labor laws, selling alcohol to minors).

      But wait, aren’t you a legal adult at 18 — not a minor? By law, we discriminate against young legal adults. At 21, the US has the highest drinking age in the world. Number 2 is Japan at age 20. For most of the rest of the world the legal drinking age is 18 or younger. In Germany, for example, to drink “spirits” you must be 18, but for beer or wine the drinking age is 16. Yes, you can legally drink beer or wine before you are old enough to drive (age 18).

      Given the wide variety in drinking ages, I would argue most of our “rational basis” for acceptable discrimination is in fact little more than arbitrary cultural bias.

      Take restrooms for example. If separating men and women is so important, then why aren’t bathrooms in homes separate too? Where are the separate facilities on commercial aircraft? It’s easily possible to have unisex public restrooms if you design it right –put all urinals and toilets are inside individual lockable stalls with no gaps floor to ceiling, while the sinks are in the “open” area of the restroom. It’s done in Europe; why not here?