Safety First?

No accidents equal lower rates, right? Not always. Find out why insurance rates aren’t solely determined by driving record.

Some drivers with clean records are being charged more for car insurance than those who’ve racked up accidents based on their income and education. Safe drivers always pay less for auto insurance than do motorists who’ve gotten into accidents, right? In fact just the opposite can be true if a driver is poorer and less educated, according to a recent investigation of car insurance policy pricing conducted by the Consumer Federation of America (CFA) in Washington, D.C.

The CFA attributes this incongruity to the insurance companies’ practice of basing rates – at least in part – on factors that have little to do with one’s driving record, such as a motorist’s level of education, occupation and lack of continuous insurance coverage. “State insurance regulators should require auto insurers to explain why they believe factors such as education and income are better predictors of losses than are at-fault accidents,” says J. Robert Hunter, CFA’s director of insurance.

The Federation compared car insurance rates for minimum liability coverage (as determined by state law) to two hypothetical drivers in 12 cities from the five largest car insurance companies: Allstate, Farmers, GEICO, Progressive and State Farm.

Both were 30-year-old women with 10 years’ driving experience living on the same street in the same middle-income zip code. The first motorist – with a flawless driving record – was assumed to be single, have a high-school education, work as a receptionist and rent an apartment. The second driver had an at-fault accident resulting in $800 of damage on her record, but was a home-owning married executive with a Masters degree and continuous insurance coverage for the last three years.

The CFA found that out of the 60 cases studied, two thirds of the quotes were higher for the safer (yet less affluent and educated) driver than for the one who had been responsible for an accident. In three-fifths of the case, the rates given were more than 25 percent higher for the accident-free motorists. State Farm was the only carrier that consistently charged the good driver less in all 12 cities.

For their part, the insurance providers say issues like income and education are used as objective actuarial factors to help determine premiums and do not imply deliberate demographic discrimination. “We work to price each driver’s policy as accurately as possible, so that every driver pays the appropriate amount based on his or her risk of having an accident,” says Jeff Sibel, Progressive Insurance spokesperson. “We use multiple rating factors, which sometimes include non-driving factors that have been proven to be predictive of a person’s likelihood of being involved in a crash.”

Still, the CFA found that the safer – yet less educated and affluent of the two motorists – was charged budget-busting premiums of $1,000 or more in 35 of the 60 cases studied. What’s more, the CFA’s study found that insurance quotes for the same driver varied wildly, with little to no consistency within cities or among providers. For example, Allstate’s yearly premiums quoted for the “good” driver ranged from $850 in St. Louis to $3,292 for the same person living in a similar area in Baltimore. Progressive’s annual rates for good drivers likewise fluctuated from $864 for a Cleveland resident to $1,928 for her equivalent residing in Baltimore. By comparison, GEICO quoted a rate of only $822 for the same Baltimore-based motorist.

The CFA suggests state insurance commissioners help make rates fairer and more affordable for a wider range of consumers by lowering minimum liability coverage, making certain that insurers are charging fair rates for this coverage and prohibiting or restricting providers from using factors unrelated to driving (including education and occupation) to price their policies.

In the meantime, the CFA’s study underscores the need for all drivers, regardless of their income, education or driving records, to shop around among insurance carriers to find the most-affordable rates.