What factors affect car insurance premiums?
Recent legislation has ignited new interest in understanding the factors insurers use to price auto coverage.
Dialogue around the factors auto insurers use to price auto premiums is center stage again following federal lawmakers’ move to upend the industry’s decades-long practice.
In February 2021, Reps. Rashida Tlaib (D-Mich.), Bonnie Watson Coleman (D-N.J.), and Mark Takano (D-Calif.) reintroduced the Prohibit Auto Insurance Discrimination Act (PAID) Act, H.R. 1270, to the U.S. Senate, which would require insurance carriers to only use driving-related criteria in determining car insurance rates and eligibility.
Related: Consumer Reports finds quoting bias at major auto insurers
The PAID Act seeks to outlaw the use of certain factors, such as education level, occupation, homeownership and credit score, in setting insurance rates. Supporters of the bill say these factors unfairly discriminate against consumers with lower incomes and communities of color and must be removed from the insurance quoting process.
Some states have since followed suit with their own actions to prevent insurers from using ‘discriminatory’ factors when quoting coverage: Earlier this month, New Jersey introduced a bill to prohibit auto insurance companies from using socioeconomic factors, and Washington Insurance Commissioner Mike Kriedler issued an emergency order prohibiting insurers from using credit scores to price auto, renters and homeowners coverage. “The insurance industry’s dependency on the discriminatory practice of credit scoring has always been unfair,” Commissioner Kriedler said in a statement. “But given that the federal protections from plummeting credit scores could end soon, we need to take action now to protect the public.”
Related: 5 factors that determine a credit-based insurance score
Many consumers don’t understand how questions on an insurance application form impact what they pay for coverage. Recently, WalletHub compared car insurance quotes for a hypothetical driver, changing various factors including driving and accident history and credit strength to see how these factors impact car insurance premiums.
Check out the infographic below to see how a range of factors can impact the cost of car insurance nationwide, according to WalletHub.
For more information about state statutes regulating credit scores in underwriting personal lines policies, visit FC&S Expert Coverage Interpretation, the recognized authority on insurance coverage interpretation and analysis for the P&C industry.