Driver income is often used by auto insurance companies to calculate rates, a new study shows.
The Consumer Federation of America recently tested premiums offered by the nation’s five largest insurers in 10 cities for two drivers with different socioeconomic backgrounds and different driving records. The nonprofit organization found that upper-income drivers often pay less.
For example, the study findings include:
- In 70 percent of tests in which a comparison was possible, a moderate-income driver with a perfect driving record was charged more for basic liability insurance than a high-income driver with a recent DUI conviction.
- In 53 percent of tests, moderate-income drivers with clean records were charged more than high-income drivers who recently caused an accident resulting in bodily injury.
- In 52.7 percent of tests, a moderate-income driver with a perfect driving record was charged more for basic insurance than a high-income driver who caused an accident and was convicted of a speeding violation within the past 12 months.
J. Robert Hunter, the CFA’s director of insurance and former Texas insurance commissioner, calls the difference in how upper- and moderate-income drivers are often treated “profoundly unfair.”
State Farm fared best in the CFA tests, being most likely to charge a good driver a lower rate than a driver with a worse record, regardless of socio-economic status.
Progressive and Geico fared worst. According to the CFA, 78 percent of the time, these companies charged moderate-income policyholders with good driving records higher premiums for a basic policy than they charged upper-income drivers who recently incurred an accident or violation on their driving records.
James Lynch, chief actuary and vice president of research and information services at the Insurance Information Institute — which represents the auto insurance industry — says in a CBS MoneyWatch report that the CFA had “shoehorned” its study to get the results it wanted.
Lynch added that insurance companies don’t look at drivers’ income but only at their risk for having an accident.
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