Rich Bad Drivers Pay Lower Rates Than Poor Ones

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Or: why car insurance rates are unfair.

The Consumer Federation of America [PDF] has a new report on major car insurers, which has an interesting conclusion…

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.

Why? Because of factors that most of us would probably argue have nothing to do with how we drive. (In fact, in a 2012 survey CFA released, more than two-thirds of the 1,000-plus people they asked said factors like education, occupation, gender and credit score were unfair to use in calculating rates.) Are those better predictors of risky driving than, you know, an actual driving record?

Yet that’s how the study shakes out. CFA got rate quotes for two fake drivers from five insurers – State Farm, Allstate, Geico, Farmers, and Progressive – in a dozen major cities. Both drivers were 30-year-old females who started driving at age 20 and lived in a zip code with a median income of about $50,000. Both drive a 2002 Honda Civic about 7,500 miles a year and carry the minimum required liability coverage.

The difference is, one’s a single high school grad who works as a receptionist and rents an apartment. She’s never had an accident or moving violation, but did let her insurance lapse for 45 days. (That’s something that can raise rates up to 9 percent, but probably not the more than 25 percent CFA often found.) The other woman is a married homeowner with a master’s degree and a recent at-fault accident who maintained continuous coverage.

What could be the motivation? A Time article on the CFA report suggests maybe insurers are trying to entice wealthier customers to bundle additional (optional) insurance policies that poorer drivers might not be able to afford.

Stacy Johnson

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