Consumer Reports finds quoting bias at major auto insurers
CR's investigation found some auto coverage rates spiked by more than $100 annually based on consumers' socioeconomic factors.
A new investigation by Consumer Reports (CR) found that some drivers with less education and lower-paying jobs are possibly paying more for auto insurance than individuals with identical driving records but higher degrees or job titles.
To determine how insurers are using socioeconomic factors in pricing, CR submitted 869 unique auto insurance quotes online to nine different insurers using 21 ZIP codes in six states plus Washington, D.C.
The quotes were for a hypothetical 30-year-old woman with a clean driving record shopping for the minimum required coverage for a 2016 Toyota Camry LE. The only details that varied were her education and occupation.
According to CR’s study, preliminary quotes for consumers with less education were more expensive, on average, at Liberty Mutual ($62 more annually), Geico ($115 more annually), and Progressive ($101 more annually). Geico and Progressive also quoted higher prices to customers with service jobs compared to managers and executives.
The investigation also revealed that just five insurers (Allstate, NJM, Plymouth Rock, State Farm and Travelers) in the study did not ask for job or education details in the quoting process.
“Drivers understand they’ll pay more for auto insurance if they’ve been in an accident or racked up a pile of speeding tickets,” said Kaveh Waddell, deputy editor for CR’s Digital Lab, in a statement. “But most people have no idea that they could be hit with a higher premium for having a service job or because they never went to college or left before graduating.”
Non-driving factors in auto insurance: Fair or unfair?
Insurers use various factors when pricing auto insurance premiums, including driving history, location, age, gender, credit history, and more.
However, using non-driving-related factors in calculating premiums has been the center of debate in recent years. A 2015 investigation by CR revealed that a poor credit score could cause a driver’s annual premium to increase by $500 to $2,000, which has led to a movement supporting the elimination of the practice.
The insurance industry, on the other hand, see non-driving factors as being critical to risk mitigation. In early 2020, insurance leaders defended the use of non-driving factors in determining car insurance rates at a U.S. House Financial Service’s Subcommittee hearing for the proposed Preventing Credit Score Discrimination in Auto Insurance Act.
“The goal of insurance underwriting is to correlate the prices for insurance policies as closely as possible to the likely cost of claims generated by those policies,” Erin Collins, vice president of state affairs for NAMIC, said at the hearing. “Utilizing predictive information is unavoidably central to this process as insurance differs from most other products because the actual cost of providing insurance is unknown. Looking back at historic losses helps to forecast future losses, but prior claims alone do not provide enough information to serve as an adequate predictor of future risk.”
But advocates for banning non-driving factors believe the practice negatively impacts minority communities. People of color have historically experienced unequal opportunities in education and the labor market; therefore, using factors like education and occupation in insurance pricing magnifies systemic racism’s economic impacts, CR explained in a press release.
“It is fundamentally unfair for auto insurers to penalize consumers with higher premiums based on factors that have nothing to do with their driving record,” Chuck Bell, programs director for advocacy for Consumer Reports, said in a release. “No one should have to pay a penny more for auto insurance just because they haven’t graduated from college or have a working-class job.”
At present, 46 states allow the use of education and job level in auto insurance underwriting, and more than 90% of U.S. auto insurers consider credit factors during quoting.
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