Should education and job status determine how much consumers pay for car insurance? According to the Consumer Federation of America, most Americans say no, those factors should not play a role – but for some major auto insurers, they do.
The CFA sought quotes from large auto insurers, varying certain application factors like education level and job type. It found that several large insurers, including GEICO, Progressive and Liberty Mutual, charge higher premiums to customers without college degrees and with “lower status” jobs. Meanwhile, half of the insurers examined did not use occupation and education to determine the cost of coverage.
Stephen Brobeck, executive director of the CFA, says even if education and job type were correlated with car accidents, it does not necessarily justify the use of those factors in determining auto coverage. “Instead, they should use factors such as miles driven, the frequency and severity of accidents caused and moving violations,” he says. Last year, a CFA survey found that most people do not approve of the use of education and occupation to set car insurance rates.
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Because states generally require drivers to have auto insurance, CFA urges states to play a role in prohibiting discrimination in the industry. Brobeck says because education and occupation are correlated with income and race, using the factors can amount to racial discrimination. Another problem is that lower-income individuals are less able to afford the high cost of auto insurance, and as a result, some people go without, which puts them at risk for catastrophic costs in the event of an accident.
For this study, CFA sought quotes from the 10 largest auto insurance companies for a hypothetical 30-year-old female driver with an impeccable driving record. The CFA’s findings included the following:
In response, Progressive spokesman Jeff Sibel wrote in an email, “We work to price each driver’s policy as accurately as possible using 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.” He added that Progressive’s voluntary, usage-based insurance program, Snapshot, allows drivers to get discounts based on their driving history, including time of day they’re on the road and how far they drive.
Farmers and Liberty Mutual did not respond to requests for comment, and GEICO forwarded all queries to the Insurance Information Institute, an industry group. Robert Hartwig, president of the Insurance Information Institute, says insurers use only factors that correlate with risk when it comes to determining premium pricing. “Every factor that insurers use – gender, type of vehicle, prior accidents – all of these factors correlate with risk, and they help to predict the likelihood and cost of future events,” he says.
If insurers were not able to consider these risk factors, then Hartwig says drivers with better driving records would end up subsidizing those who are riskier. “From an insurance perspective, it’s fair to charge men more than women, because there is a very strong correlation between gender and insurance-related losses,” he adds.
As for the charge that using occupation and job status in pricing amounts to racial discrimination, Hartwig says that is simply not the case. “Insurance underwriting is completely blind to issues or race and ethnicity, and any association that the CFA alleges is a spurious one,” he says.
Hartwig says that anyone who thinks they are paying too much for auto insurance should shop around. “They’ll get a variation in prices, and that’s a good thing, because it’s a sign of a competitive marketplace. Dozens of insurers are competing for the business of drivers,” he says. The average annual insurance premium, according to III, is just under $800.