That’s the finding of a recent Consumer Federation of America study that examined quotes in 15 cities from the four largest auto insurers in the country and Florida — State Farm, Allstate, Progressive, and GEICO.
The Consumer Federation found, among other things, insurers quote wildly different rates for similar, hypothetical drivers because of factors that can unfairly target those with less money. For instance, in Miami, an insurer quoted one person $1,759 a year and another who is similar $3,457. Two other insurers quoted a woman in Miami $2,822 and $2,203 and a man, $1,978 and $2,430, respectively.
The Sun Sentinel found a similar trend when obtaining 16 online quotes for two hypothetical customers in Fort Lauderdale with exactly the same profile, including the same age and car, with the only difference being either the driver’s occupation, education level or whether they are a homeowner. The quotes, which covered 6-month policies, were all higher for the person whose income would likely be lower based on the factor tested. The difference ranged from being $20, or 2 percent, higher for a secretary versus an executive to a whopping $489, or 114 percent, higher for someone without a high school degree versus someone with a doctorate.
State Farm and Allstate, two of the four biggest auto insurers, were not included in the survey because their online quoting form requires providing a real person’s information. Obtaining quotes using a real person’s information generated a similar result.
Regulators discourage insurers from using income to set rates, but other factors can be used as surrogates or proxies, according to a Florida Office of Insurance Regulation report in 2007.
“While the use of race as a rating factor was outlawed in Florida … occupation and education has emerged in the rating and underwriting of auto insurance and appear to be highly correlated to race and income-level,” according to the report.
Hilary Shelton, the NAACP’s senior vice president for advocacy, said home ownership is also correlated. About 40 percent of racial and ethnic minorities own homes, while the rate is about 70 percent for whites, Shelton said.
“It puts many struggling Americans in a very disadvantaged position. It [hurts] those people who can least afford it,” he said. “Clearly, it’s discriminatory…Things like your income, marital status and job title should have absolutely nothing to do with how much money one is charged.”
Insurers don’t discriminate based on criteria such as race, religion and gender and they use only factors that reveal how likely you are to get in an accident, said Bob Hartwig, president of the Insurance Information Institute, an industry group.
That ensures they’re charging each person as close to the right price as possible, so consumers who are less likely to get in accidents won’t have to pay as much as people who are more likely, Hartwig said. “The CFA seems to completely ignore the fact that people can shop for insurance and [right now auto] insurers are hungry for your business,” he said.
Christine Tasher, GEICO’s public relations director, said the insurer’s rates are “very competitive” in Florida. She added: “Hypothetical quotes really are just that … hypothetical.”
So why do insurers ask for the information when providing quotes? Insurance Information Institute Spokeswoman Lynne McChristian said it’s because they “have found there is a statistical correlation between [factors such as] occupation and losses,” but they don’t study why that is.
Bob Hunter, the Consumer Federation’s director of insurance, said when you combine one factor, such as working as a cashier, with others, such as renting instead of owning, it can be a double-whammy on your premium. “Every one of the factors can have an adverse impact…When you use all eight of them it’s a huge adverse” impact.
Consumer advocates say using factors that indicate one’s income is just as bad as using credit scores, which some states have banned for similar reasons. They say the factors used put poor people at a greater disadvantage than they already are, which contributes to more drivers being uninsured.
“If they were used by lenders, people would be in the street complaining and regulators would be cracking down,” said Stephen Brobeck, executive director of the Consumer Federation. “Insurers have slowly been using more and more factors related to socio-economics as opposed to whether you’re a good driver or not.”
A new tool some insurers offer that gives discounts based on how policyholders actually drive — called pay-as-you-drive or usage-based programs — may reduce the impact of socio-economic factors on rates. Two of Florida’s largest insurers started offering the program: Progressive and recently, State Farm.