Many major insurers use non-driving factors, such as education, occupation and lack of previous insurance in setting prices, and a majority of Americans think that’s unfair, according to results of a Consumer Federation of America (CFA) survey.

“If you are single, not married; a high school graduate, not a college graduate; a clerical worker, not a professional; a renter, not a homeowner; a resident of a moderate-income, not a high-income area, and have a 15-day break in your insurance coverage, your premiums – except at State Farm – were usually at least double,” and potentially four times greater than someone with the same driving record and credit score, but different demographic, said Stephen Brobeck, executive director of CFA during the association’s press teleconference: “New Analysis of Factors in Auto Insurance Rate Setting and Consumer Attitude Survey of Rate Setting Fairness.”

“Very large majorities think it is unfair for these kinds of non-driving factors to be used by insurers in pricing insurance,” Brobeck continued. “Only one-third or fewer think insurers should use occupation, education, not having insurance and credit scores. At least 85 percent think it is fair for insurers to use at-fault-traffic accidents and moving violations in this pricing. The use of these factors clearly discriminates against low and moderate income drivers.”

Robert Hartwig, president of the Insurance Information Institute, dismissed the findings. “This is nothing that hasn’t been debunked before,” he said. “Notably missing from the CFA’s analysis is that every one of these factors that they attack is correlated, and highly correlated, with loss. The word ‘risk’ is even missing [in the CFA release],” he said. “The credit based insurance scores have been used by insurers for 15 years. These are not new. They are ubiquitously used because they are highly correlated with loss. And the beauty of the scores is that they are blind to income, to race, to geography in terms of where you live. They are blind to all the things that the CFA criticizes, like marital status, income, where you live, the kind of car you drive, where you work, occupation. It’s blind to all those things, but it is highly correlated with loss. And so that’s why it’s allowed.”

Consumers were asked: “How fair do you think it is for insurers to use each of the following factors in deciding on an auto insurance price for a driver?” And, they answered (% Very or Somewhat Fair): 

• Traffic accidents caused—87%

• Moving violations such as speeding tickets—85%

• Number of years with a license—74%

• Age—66%

• Miles driven—61%

• Location of residence—45%

• Occupation—33%

• No previous insurance because no car—32%

• Level of education—31%

• Credit score—31%

• Gender—30%

The survey was conducted in June by ORC International and is based on 1010 interviews. The premium analysis was derived online and priced minimum liability coverage for a 35-year-old woman with a good driving record in five cities. Each iteration altered characteristics including marital status, educational levels, occupation, homeownership, and other attributes. Companies included State Farm, Allstate, GEICO, Progressive and Farmer’s, and cities studied were Baltimore, Miami, Louisville, Houston and Los Angeles.

Most quoted premiums remained high when the test subject is single, a renter in a moderate-income area, a high school graduate, a bank teller or clerical worker, and lacking continuous insurance coverage. Premiums are substantially lower when the woman is a married homeowner with a college degree, professional job and maintained continuous coverage. In three examples involving Farmer’s, Allstate and State Farm in Miami, insurers would not provide a quote. Living in a moderate-income neighborhood and the lack of a college degree resulted substantial premium increases, which may discriminate against moderate-income drivers, CFA said.

Assuming a good credit score for all scenarios, changing these factors significantly lowered insurance premiums in most cases, and in 12 examples premiums declined by half; in four examples premiums fell by 68 percent or more. Lowering credit scores would have caused more extreme rate differences. At GEICO, according to CFA, altering marital status, education, occupation, continuity of coverage and ZIP code reduced premiums by 86 percent in Miami and 68 percent in Louisville.

Adding an at-fault accident increased quoted premiums. But in nearly all of these examples (with the exception of State Farm) these premiums were still considerably lower than those quoted for the moderate-income clerical workers who had a clean driving record.

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