Drivers and insurance companies have very different ideas about
what should determine auto insurance rates, a new survey from the
Consumer Federation of America
A majority of the 1,010 people surveyed told the nonprofit
consumer watchdog they believed their rates should be based on
specific driving behaviors and history. Insurance companies
currently use a variety of non-driving factors such as credit
history and ZIP code to set rates. All states except New
Hampshire require car owners to buy some kind of insurance or proof
of financial responsibility.
Percentage rating each insurance factor as "very fair" or
87% Traffic accidents
85% Moving violations
such as speeding tickets
74% Number of years
with a license
61% Miles driven
45% Location of
32% No previous
insurance because no car
31% Level of
31% Credit score
"Insurers are permitted to use factors such as education and
occupation in setting prices even though these factors have nothing
to do with driving and discriminate against lower-income drivers,"
says Stephen Brobeck, spokesperson for the CFA. "Premiums
should largely reflect factors such as accidents, speeding tickets,
and miles driven, over which drivers have some control and which
directly affect insurer costs."
The insurance industry, in response, says the ability to more
precisely measure risk lowers rates for good drivers.
"Consumers have never had more options in terms of the number of
insurers competing for their business, offering them an
unprecedented ability to compare prices, shop and save," says
Robert Hartwig, president of the Insurance Information Institute
III data show average car insurance expenditures at an
inflation-adjusted 20-year low.
Insurance companies are not alone in looking at non-driving
history. Almost all states will revoke a driver's license for
reasons that have nothing to do with driving. (See "
59 ways to lose your license -- without a
The poverty penalty
Some of those non-driving factors can have a huge effect on
Where you live, for example, can change the rates you are quoted
by thousands of dollars, even for the same driver in the same car.
The most and least expensive cities for car
") Insurance companies use their claims experience in a particular
ZIP code to forecast how likely you are to file a claim.
Credit scores are similarly predictive, insurers say.
Research has shown that people with bad credit tend to file
more claims -- and they wind up paying more both for credit and for
car insurance. (See "
The double whammy of bad credit
The upshot is that many drivers without accidents or tickets pay
car insurance rates that unfairly target poorer people, the CFA
To illustrate its point, the CFA asked five major insurers for
rates in moderate-income ZIP codes in five cities, using a
35-year-old with a clean driving record and good credit as its
sample. Then it asked for rates that considered the
In Baltimore, for example, the driver would pay $2,696 a year to
Progressive for Maryland's legal minimum liability coverage. But
that number shrinks to $2,574 a year is the driver owns a home. It
falls to $2,212 if she is married -- and to $1,450 a year if she
moves to a higher-income ZIP code.
"Low- and moderate-income families who are disadvantaged by
insurer pricing policies need affordable liability coverage so they
can drive legally," says Brobeck. "The fact that these
families often can't obtain this coverage helps explain why so many
risk fines, or even imprisonment, by driving without
A very expensive gamble
In some states, as many as 25 percent of drivers are uninsured,
according to the Insurance Research Council. Nationally, the number
is about 14 percent.
"The problem cuts both ways," says CarInsurance.com consumer
analyst Penny Gusner. "The more drivers who can't afford insurance,
the more that other drivers have to worry about." (See "Why you
don't have enough uninsured motorist coverage.")
Some states have tackled the issue by ramping up the possible
punishments for uninsured motorists. "No pay, no play" laws limit
the legal options for accident victims who are uninsured. Some
states give police the right to have the driver's vehicle towed and
California has gone the other way, steering low-income drivers
toward its Low Cost Automobile Insurance Program, which offers
reduced coverage at a reduced price -- a $350 or less per year.
"People don't realize that going without insurance will cost
them a fortune in the long run," Gusner says. "Fines are just the
start. Once you've got a no-insurance ticket on your record, you'll
pay a lot more when you go to comparison-shop for insurance