Auto Insurance: Are low income drivers unfairly targeted with higher rates?

If you have a blue-collar job or no college degree, you may be paying more for auto insurance than an educated, white-collar driver with the same car and driving record.

That’s the finding of a Consumer Federation of America study that examined auto insurance quotes from State Farm, Allstate, Progressive, and GEICO across 15 cities.

The study found insurers quoting wildly different rates for drivers with identical driving records. The only difference? Factors like education level and occupation. In other words, low-income drivers often find themselves paying thousands more than their high-income counterparts.

The Sun Sentinel found a similar trend. In their investigation, they created pairs of nearly-identical online profiles, each with same car and driving record but different jobs and levels of education. These profiles then requested 16 online quotes from Fort Lauderdale insurers. The results? Across the board, insurance rates were higher for the lower-income customer. In some cases, this difference was as low as 2% (between a secretary and a business executive). In other cases, it was as high as 114% (between a customer without a high school degree and one with a doctorate).

Regulations discourage insurers from setting their rates based on income. But according to the Florida Office of Insurance Regulation, insurers sidestep this policy by using other factors as proxies.

“While Florida outlawed the use of race as a rating factor … occupation and education have emerged in the rating of auto insurance and appear to be highly correlated to race and income level,” the report says.

Hilary Shelton, the NAACP’s senior vice president for advocacy, says home ownership is also correlated. About 40% of racial and ethnic minorities own homes, but 70% of whites are homeowners, Shelton says.

“It puts many struggling Americans in a very disadvantaged position. It [hurts] those people who can least afford it,” he says. “Clearly, it’s discriminatory…Things like your income, marital status and job title should have nothing to do with how much money one is charged.”

Bob Hartwig, president of the Insurance Information Institute, rejects these claims. He says that insurers only account for factors that reveal how likely you are to get in an accident.

Christine Tasher, GEICO’s public relations director, also dismisses the validity of these studies. “Hypothetical quotes really are just that … hypothetical,” she says.

But if these factors don’t impact rates, why do insurers need this information when providing quotes? Insurance Information Institute Spokeswoman Lynne McChristian says it’s because they “have found a statistical correlation between occupation and losses.”

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. These practices put low-income people at a greater disadvantage, while giving high earners cushy rates. This puts more uninsured drivers on the street, and drives greater polarization of wealth.

“If [these factors] were used by lenders, people would be in the street complaining,” said Stephen Brobeck, executive director of the Consumer Federation. “Insurers have been using more and more factors related to socio-economics, as opposed to whether you’re a good driver or not.”

Fortunately, some new insurance programs may help to ameliorate this inequity. “Pay-as-you-drive” or “usage-based” programs give discounts based on how policyholders actually drive, rather than their socioeconomic context. In Florida today, only Progressive and State farm offer these options.

Looking to get a fair rate from auto insurers? SuperMoney can help you find the policy that’s right for you.