Study: Safe drivers don’t always get best car insurance quotes

Chris Kissell

Safe drivers with less education and lower income levels consistently receive pricier car insurance quotes than drivers who have at-fault accidents on their records but who have higher levels of income and education, according to a report from the Consumer Federation of America.

During a Jan. 28 news conference, executives with the federation outlined the findings of their study. The study concludes that insurers are being allowed to discriminate on the basis of factors not related to driving, such as occupation or education, when setting rates.

As a result, low-income drivers find it difficult to find affordable car insurance that lets them comply with state laws requiring drivers to buy at least a minimum amount of coverage, according to Stephen Brobeck, the federation’s executive director.

“This is not a free market at all; it’s a very uncompetitive market,” Brobeck said during the news conference.

Two drivers, different quotes

The study looked at 120 rate quotes from the five largest car insurers – State Farm, Allstate, GEICO, Farmers and Progressive – in 12 U.S. cities: Atlanta; Baltimore; Chicago; Cleveland; Denver; Houston; Los Angeles; Phoenix; St. Louis; Seattle; Tampa, Fla.; and Washington, D.C.

For comparison purposes, the consumer group sought rates quotes for two hypothetical 30-year-old women with 10 years of driving experience who live on the same street in a middle-class ZIP code.

Each woman was seeking the minimum amount of liability coverage required in her state. But the two women differ in key ways.

One woman is a single receptionist with a high school education who rents her home. She has been without car insurance for 45 days, but has no history of accidents or moving violations.

The other woman is a married executive with a master’s degree who owns a home and who has had continuous insurance coverage. However, this woman was responsible for an at-fault accident that occurred within the past three years and caused $800 in damage.

Among the study findings:

• In two-thirds of cases studied, insurers quoted higher premiums to the safer driver than to the driver responsible for an accident in the past three years.

• In more than three-fifths of such cases, the premium quoted to the safe driver exceeded the premium quoted to the unsafe driver by at least 25 percent.

In every case, Farmers, GEICO and Progressive quoted the safe driver a higher premium than the driver with an at-fault accident, the federation says. Allstate was a mixture – sometimes it quoted a higher rate to the receptionist, and other times it quoted a higher rate to the executive.

Just one insurer – State Farm – consistently quoted lower prices for the safe driver. This indicates that State Farm gives more weight to driving-related behavior when setting rates than to factors unrelated to driving, according to Brobeck. He wonders why other car insurers can’t do the same.

The federation thinks it’s unfair that drivers are receiving quotes based on factors such as income and education. It would like to see state regulators push insurers to explain why such factors are better indicators of losses than at-fault accident histories are.

Brobeck says state insurance regulators and other state officials must work together to make car insurance more affordable. “Liability coverage is very expensive – often more than $1,000 annually and sometimes more than $2,000,” he says.

Because rates are so high, many drivers break the law and drive without insurance, Brobeck says. The federation thinks basic minimum liability coverage should cost somewhere between $300 and $500. But in the group’s study, there were just four examples of quoted premiums under $500.

Response to the findings

In a statement, the nonprofit Insurance Information Institute, backed by the insurance industry, says it disagrees with the consumer group’s conclusions.

The institute contends that drivers directly control several factors that help determine rates, including driving record, the type of car a person drives and the number of miles driven. The institute says such factors are “downplayed” in the consumer group’s report.

The institute’s statement emphasizes that average car insurance costs actually dropped 3 percent between 2006 and 2009, according to a study by the National Association of Insurance Commissioners. 

“As anyone who watches television commercials knows, auto insurance coverage is widely available in every U.S. state,” says Steven Weisbart, senior vice president and chief economist at the Insurance Information Institute. “And competitive marketplaces drive down prices. Drivers should shop around if they feel as though their current auto insurer is not meeting their needs, or is charging too high a price.”

The American Insurance Association, a trade group for insurers, also took issue with the consumer group’s study.

“The use of factors such as credit-based insurance scoring, location of the vehicle, driver experience, traffic citations, continuity of coverage and education helps insurers to more accurately price risk,” Willem Rijksen, vice president of public affairs at the insurance association, says in a statement.