The Consumer Federation of America is charging that the nation's poorest drivers are being charged unfairly high auto insurance premiums because of discriminatory practices. The organization called on state insurance regulators to do something about it.
"Our research shows evidence of unfair and discriminatory treatment of these families," CFA executive director Stephen Brobeck said in a conference call with reporters Monday after releasing the 26-page report.
Low- and moderate-income families earning less than $37,000 pay higher premiums than more affluent households because of rating factors such as where they live, occupation, education and credit rating, the consumer group said.
While all 50 states prohibit insurers from setting insurance rates based on income, "We think these questionable factors are surrogates for income," CFA director of insurance Robert Hunter said.
Hunter gave an example of a single man in St. Louis, age 30, accident free, driving a Ford Taurus 20 miles per day and buying basic insurance coverage. If he had an MBA degree and lived in an affluent suburb, his rate was $558 a year. By changing his education to high school graduate, his rate rose by $71. If he became unemployed, the rate jumped another $84. If he moved into the city, his rate rose $347. If he paid premiums on an installment basis, the rate rose $60. The rate increased another $638 if he had a period where he was uninsured and another $337 if he did not have a car for a time.
Altogether, the changes drove the man's total premium to $2,095, the consumer advocacy group said.
"Use of these proxy factors for income should not be allowed," Hunter said.
Because of the high costs, the CFA estimated that up to one-third of low- and moderate-income vehicle owners can't find affordable insurance and are forced to drive without state-mandated coverage. Others simply can't afford a car.
Jim Whittle, chief claims counsel for the American Insurance Association, said different insurers use many different variables to price insurance. "The most important thing from our perspective is that rates need to reflect risk," he said.
When asked why a driver's education would affect rates, he said he wasn't sure the CFA's example was accurate.
On the flip side, insurers largely ignore one important risk-related factor -- annual mileage -- to the detriment of lower-income families who typically drive far fewer miles than higher-income households, the consumer group said. "The lower risks associated with fewer miles driven are not adequately recognized," the CFA said.
Besides working to eliminate discriminatory practices, states should lower the minimum amount of liability coverage required for low-income drivers because they do not benefit from the coverage, the CFA said.
Read the CFA report at www.consumerfed.org/news/450.