What The? Your Finances Influence Your Car Insurance Rates More than Your Driving Does!

Mandatory liability car insurance could be one more way corporations make the poor pay more, while the rich get a free ride. According to a recent study by the Consumer Federation of America, an executive will pay up to 68 percent less for car insurance than his or her secretary, even if the secretary is a better driver. In fact, the study clearly shows that with four out of five of the leading car insurance companies, people who rent and not own, don’t have a college degree and have an average paying job automatically pay more than educated homeowners with good jobs.

How the Ugly Truth Came to Light

The CFA did a mystery shopping style study of the top five insurance companies, Allstate, GEICO, Farmers, Progressive and State Farm. Identical tests of all five agencies were conducted in 12 major U.S. Cities. In the study, two women’s profiles were used to apply for car insurance. The two women were the same in the following ways:

  • They were both 30 years old
  • They both live on the same street, in $50K average income zip code
  • They both drive a 2002 Honda Civic
  • They both requested minimum required liability coverage
  • Neither wanted collision or comprehensive

The two women differed in the following ways:

The woman in profile A:

  • Married with a master’s degree and an executive job
  • Owns her own home
  • Had been involved in an accident that was ruled her fault.
  • Currently had coverage with another company.

The woman in profile B:

  • Single bank teller with a high school diploma and good credit
  • Rents a house
  • Has a clean driving record
  • Insurance had lapsed 15 days before application.

The Results were Shocking

In Baltimore, Allstate told applicant B she would pay $3,292, while applicant A only needed to pay $1,248. Farmers would not even offer our bank teller a quote! Only State Farm charged the bank teller less. In fact, in each city, only State Farm consistently made the woman who had actually had an accident pay more, while our bank teller saved hundreds in premiums. All the rest of the companies seemed to favor the wealthier, more educated woman, despite her driving record.

Another CFA report cites a 30-year-old male profile they manipulated to test the various factors. The original profile gave this man a M.B.A. Less education costs him $71 dollars extra. Unemployment will cost him another $84. If he moves from the suburb to the city, it will cost him $347 in insurance premiums. If he’s had a gap in coverage, he will pay an extra $638. Financing for monthly payments will cost $60. Drivers with bad credit pay up to 25% more.

Why Do Insurance Companies Punish the Poor?

Why would those who can afford it least, have to pay more for the same level of service? Could this be an example of that class warfare we all keep hearing about? Could there be a plot to utterly bankrupt 99 percent of Americans, one insurance payment at a time and leave the spoils to the rich? Are the same people who favor flat taxes and excessive sales taxes on food to blame for this? It may seem a bit paranoid, but what other conclusion could we draw from this? It’s enough to make you start considering a tinfoil hat!

So What Do the Insurance Companies Say?

Of course, it’s important to look at both sides of the issue. Insurance company representatives claim that every single risk factor, no matter how unrelated to driving it may seem, does correlate to accident statistics. In this way, they insist that even mundane and seemingly irrelevant details become risk factors in their complex calculations. If, for example, their statistics say that non-college grads have more wrecks, they feel justified in charging non-college grads more.

The nonprofit CFA heartily disagrees. They say it is obvious that insurance companies are willfully discriminating against the poor and less educated for no logical reason. They claim that all the so-called risk factors favor the wealthy, while more obvious risk factors that favor the poor are ignored. For example, the CFA favors paying per mile of driving, rather than punishing someone for not being able to afford college, or because they lost their job. The reason most insurance companies do not give significant breaks for less driving is because poor people already drive an average of half as many miles as wealthier people.

Having worked in the car insurance industry for 13 years, I can tell you there may be another explanation insurance companies don’t feel comfortable talking about… insurance fraud. Those who struggle financially are much more likely to make fraudulent claims. The pricing structure might have to do with insurance companies hedging their bets against unscrupulous policyholders.

Is More Regulation is Needed?

In states like California, where there are strict regulations and alternative programs for the poor, premiums are both lower and fairer. It is surprising that in California, land where the cost of most everything else is inflated, car insurance is much cheaper than in other states. By regulating rates, states make sure than honest poorer drivers don’t pay the penalties for those abusing insurance for personal gain.

The CFA hopes that their reports will stir a public outcry for fairness in car insurance rates and nationwide standards for all car insurance premium adjustments. Insurance commissioners should beware! You are about to be petitioned on this issue.

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