When a rate quote is given for car insurance, your driving record isn’t the only factor that’s considered. Except in California, which prohibits or limits the use of “non-driving factors” to establish premium rates, insurers are likely to assess your education, occupation, residence area, credit record, and whether you rent or own your home.
A national survey of 1,100 adults, conducted by ORC International for the Consumer Federation of America (CFA), found that customers “disapprove of factors that auto insurers use in setting prices.” Most respondents, according to CFA, said they “do not think it fair for auto insurers to use factors such as level of education, occupation, and lack of previous insurance” when setting prices for premiums.
Survey respondents rejected all six of the non-driving factors mentioned: gender, credit score, educational level, occupation, residential ZIP code, and having no previous insurance (possibly because the person did not own a car). Four of the five factors that respondents did approved of for use in rate-setting involved driving behavior: traffic accidents, moving violations, number of years with a driver’s license, and miles driven. CFA notes that age, the fifth factor approved by respondents, is “related to years of experience.”
Specifically, nearly one-third of surveyed respondents said it was not “very fair or somewhat fair” to consider an applicant’s occupation, educational level, credit score, or lack of previous insurance. A higher number (45 percent) deemed it fair to consider a person’s residence location. At the other end of the scale, 87 percent believed it was acceptable for insurers to consider traffic accidents caused by the applicant, while 85 percent approved the consideration of moving violations. Number of years with a license, age, and miles driven were considered “fair” questions by 61 to 74 percent of the respondents.
In a separate analysis, CFA determined that most major insurers use such non-driving factors, increasing premiums for low- and moderate-income drivers by as much as 100 percent, or even more. To obtain examples, CFA analyzed insurance premiums using the websites of the five largest auto insurers (State Farm, Allstate, GEICO, Progressive, and Farmer’s). Premium quotes for minimum liability coverage were requested for a fictitious woman, age 35, with a good driving record and good credit score. To determine the impact of various factors thought to be unrelated to driving, investigators varied such characteristics as marital status, educational level, occupation, and home ownership (versus renting).
Most premiums were high when the woman was represented as a single high-school graduate, a renter in a moderate-income area, working in a clerical position, and lacking continuous insurance coverage. In 12 of the 22 rate requests that yielded price quotes, changing those factors lowered insurance premiums by half or more, according to CFA. State Farm “relied the least on non-driving factors,” CFA reports.
In most of the examples, adding an at-fault accident “increased quoted premiums,” according to CFA. Even so, with the exception of State Farm, “these premiums were still considerably lower than those quoted for the moderate-income clerical workers,” who were represented as having a “clean” driving record.
“Insurers are permitted to use factors such as education and occupation ... even though these factors have nothing to do with driving and discriminate against lower-income drivers,” says Stephen Brobeck, CFA’s executive director. “Premiums should largely reflect factors such as accidents, speeding tickets, and miles driven.” These are the elements “over which drivers have some control and which directly affect insurer costs.”
Looking over the results, however, we have to wonder why 15 to 17 percent of respondents didn’t even think that a history of traffic accidents and moving violations should be considered when setting premium rates. Conversely, having nearly one-third of those folks express agreement with the use of “non-driving” factors doesn’t exactly sound like an intense level of opposition.
