This underwriting factor can cause clients to pay 59% more for car insurance: Report

This underwriting factor can cause clients to pay 59% more for car insurance: Report

This underwriting factor can cause clients to pay 59% more for car insurance: Report The Consumer Federation of America (CFA) unveiled its latest report Monday, with the study’s findings suggesting that motorists with lower incomes pay considerably more for basic car insurance.

The study analyzed price quotes for minimum liability coverage, and found that hypothetical lower-income drivers were quoted premiums costing an average of 59% more (or $681 more) than drivers with higher incomes—despite having perfect driving records.

With the results of its study, the CFA concluded that it was unfair for insurers to use motorists’ educational levels, marital statuses, and housing to determine how much they should pay for auto insurance, reported StarTribune.

Of the 15 cities and communities surveyed by the study, Minneapolis posted the largest disparities in insurance quotes between higher and lower income consumers. The report found that GEICO charged a lower-income female in Minneapolis 300% more than a similar female motorist with a higher socio-economic status.

Several insurers and industry experts have commented on the report’s findings.

“Balderdash,” remarked Insurance Information Institute chief actuary James Lynch. He underscored that while variables such as education level and homeownership may not be related to driving, they are linked to risk and thus are commonly used.

“They are all very good predictors of whether or not a person is going to be in an accident,” said Lynch. “Are insurance companies supposed to ignore information that’s staring them in the face?”
Lynch also criticized the report for its small sample size of 280 drivers.

Christine Tasher, a spokesperson for GEICO, said that the company’s prices are based on “actuarially justified costs.”

“We work hard to provide low rates and savings to all consumers,” she added.

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  • Kris 6/28/2016 11:36:05 AM
    What this fails to mention is the impact of an individuals CREDIT SCORE has on their insurance rates. The article cites 'martial status, education level, and housing', but anyone who writes insurance in a state where CREDIT is used to influence your "insurance score" knows full well that folks with poor credit scores (very often low income) pay HUGE 'surcharges' in their premium for having that low credit score.

    However, because it would be illegal to call it a 'poor credit surcharge', the sneaky insurance companies invited the "insurance score" and made an individuals credit approx. 90% factor in that score.... making it perfectly legal.

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  • Ryan 6/28/2016 12:22:19 PM
    From my perspective, as an agent that sees the rating disparity between otherwise similar risks, I think the problem is simply data overload. I think the strongest evidence for this is the continuing struggle to achieve satisfactory combined ratios, despite ever more complicated rating models. If the models worked, shouldn't profitability be a natural result?

    The rating models may not be truly "discriminatory" but they absolutely target certain socio-economic groups as higher risk based on factors such as credit, education level, and geography.

    Some of rating models have become so convoluted, we refer to them as "voodoo underwriting". The carrier might as well roll the bones and determine rates from the reading, because that would make as much sense as the prices derived from their predictive models.

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  • Karen 6/28/2016 7:20:41 PM
    Firstly, credit score has nothing to do with income. High earners are notorious for paying late and are more likely to have a poorer credit score than someone who makes less and manages their finances more closely

    Secondly, there are other socio-economic factors in play that likely affect the premium analysis - such as age of vehicle, location/crime rate, multi vehicle/policy discounts and years insured

    Although I agree marital status & education level should not be factors in auto rating I do believe that the analysis can only be headline worthy if all other variables such as the ones above were neutral, which I suspect they are not
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