Consumer Reports: Insurers Issued Higher Quotes To Drivers Of Lower Means

Drivers with less education and less lucrative job titles could end up paying more for auto insurance compared to consumers with identical driving records who have advanced degrees or job titles that come with higher pay, according to a new investigation by Consumer Reports.

CR found that Geico, Progressive, and Liberty Mutual quoted higher premiums, on average, to consumers who had completed less education. Geico and Progressive also quoted higher prices to consumers with service jobs compared to managers and executives.

"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. "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."

Insurance companies routinely consider both driving and non-driving related factors when pricing automobile insurance policies. Driving factors include history of crashes and traffic violations, number of miles driven every year, and years of experience. In addition to education and job title, non-driving factors can include age, gender, marital status, ZIP code, credit history, and whether you rent or own your home.

To understand how insurers are using education and occupation to set premiums, Consumer Reports requested 869 unique online auto insurance quotes from nine different insurers. CR studied 21 ZIP codes in six states plus Washington, D.C.--including New Jersey and Oregon, where lawmakers are debating bills to ban the use of the two factors.

Consumer Reports sought quotes for a hypothetical 30-year-old woman who owns her 2016 Toyota Camry LE and has a clean driving record, shopping for her states' minimum required coverage. The only details that CR varied between requests were her education and occupation. A detailed explanation of the investigation and methodology can be found here. CR found that:

* Three companies provided preliminary quotes that were more expensive on average for consumers with less education: Liberty Mutual ($62 more annually), Geico ($115 more annually), and Progressive ($101 more annually).

* Two companies provided preliminary quotes that were more expensive on average for an applicant who was a cashier compared to an executive: Geico ($97 more annually), and Progressive ($31 more annually).

* Some quotes collected by CR were much higher. Because people with more education are likelier to work professional jobs, this kind of pricing can hit low-income consumers doubly hard. In Hoboken, NJ, for example, Geico quoted a hypothetical cashier without a high school degree an annual premium that was $455 higher than an identical driver with an executive job title and advanced degree.

* Five of the companies studied (Allstate, NJM, Plymouth Rock, State Farm, and Travelers) do not ask prospective customers about job or education levels. Farmers collects information about occupation, but its quotes did not vary substantially across job categories.

When auto insurers factor in other non-driving factors, especially credit scores, the additional cost is likely to be much more substantial. In 2015, Consumer Reports found that socioeconomic factors sometimes weigh more heavily than driving details in the premiums insurers set. CR's investigation revealed that a poor credit score could add $500 to $2,000 or more to a driver's annual premium compared with a consumer who had the same driving record and excellent credit.

Pricing auto insurance based on non-driving factors like education and occupation is particularly troublesome since it magnifies the economic impacts of systemic racism. Because of discrimination and economic disparities, people of color have historically had less access to adequately funded primary and secondary schools, higher education, and employment opportunities, leading to highly unequal outcomes in education and the labor market. In the U.S., these factors remain closely tied to race, which cannot legally be considered by insurance companies in calculating insurance prices.

"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," said Chuck Bell, Programs Director for Advocacy for Consumer Reports. "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."

Consumer Reports has long opposed the use of non-driving factors for setting individual auto insurance rates because this practice can unfairly penalize consumers with higher premiums even though they have good driving records. Instead, CR has urged state regulators to require insurers to base premiums primarily on factors that reflect the risk of insurance losses that consumers pose when driving (i.e. an individual's driving record, miles driven, and years of driving experience).

In conjunction with its investigation, Consumer Reports is launching a petition today to Geico and Progressive calling on the companies to stop using education level and job title to set auto premiums. CR sent letters today to state insurance commissioners in 46 states and the District of Columbia calling on them to ban those rating factors.

Four states--California, Massachusetts, New York, and Michigan--currently prohibit the use of education and job level in auto insurance pricing. California, Hawaii, Massachusetts, and Michigan have banned the use of various types of credit information for auto insurance pricing.

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RESEARCH: https://www.consumerreports.org/cro/car-insurance/auto-insurance-special-report1/index.htm