A nationwide survey of consumers shows they find it unfair that factors unrelated to driving play a part in how much they’re charged for auto coverage, while insurers refuted the results from the survey, saying the pricing process is complex and that use of non-driving factors is necessary.
The survey was conducted by ORC International for the Consumer Federation of America (CFA) and included responses from 1,100 people. Factors that those surveyed find to be unjustified include education levels and presence of previous coverage.
“These factors have nothing to do with driving and discriminate against lower-income drivers,” Stephen Brobeck, CFA executive director, said in a statement. “Premiums should largely reflect factors … over which drivers have some control and which directly affect insurer costs.”
The question posed to respondents was: “How fair do you think it is for insurers to use each of the following factors in deciding on an auto insurance price for a driver?”
A policyholder’s number of traffic accidents was the top factor in the survey that respondents said was a “very” or “somewhat” fair factor, with 87 percent. Meanwhile, gender was at the bottom of the pile, with only 30 percent responding that it was a justifiable factor used in insurance rate pricing.
The survey’s complete listing is as follows, with the percentage of respondents saying the factor was “very” or “somewhat” fair:
–Traffic accidents caused: 87 percent
–Moving violations like speeding tickets: 85 percent
–Number of years with a license: 74 percent
–Age: 66 percent
–Miles driven: 61 percent
–Location of residence: 45 percent
–Occupation: 33 percent
–No previous insurance because no car: 32 percent
–Level of education: 31 percent
–Credit score: 31 percent
–Gender: 30 percent
Insurers Rebut CFA, Say Using Range of Factors Necessary
The Property Casualty Insurers Association of America (PCI), which represents 1,000 insurers in what is the industry’s largest trade group, called the CFA’s latest findings a “mostly misguided public policy prescription” that would be “counterproductive and hurt most motorists, resulting in higher costs and fewer choices for all consumers.”
Non-driving factors play just as important as driving-related factors in the complex method of pricing coverage, according to PCI.
“When blended together, these factors help to ensure that low-risk consumers can be better identified and pay less for insurance,” Alex Hageli, PCI director of personal lines, said in a statement.
Pricing methods are so complex, Hageli said, that the response from consumers in the survey was unsurprising.
“We find that many motorists, including many legislators, simply do not know much about how premium is calculated, nor do they understand why insurers use certain factors to determine premium,” he said. “However, once it is explained to them that the use of this information allows their insurer to charge them a more accurate rate, including for most people a lower rate when credit information is considered, then we find that most support that use.”
PCI also refutes CFA’s recommendation that insurers be regulated further, according to Hageli, who added that the best way to lower rates is to diversify the market.
“Consumers benefit with lower rates, more choices and greater market stability when insurers are able to use the most accurate underwriting and rating tools available,” Hageli said. “If restrictions are placed on insurers’ rating factors, then what will happen is that lower-risk consumers end up paying more in order to offset premium decreases given to higher-risk consumers.”
The Insurance Information Institute also spoke out publicly against the survey’s results.
With Quote Analysis, CFA Claims Premiums Are Unjustly Inflated by Factors
In a separate analysis using several car insurance quotes from websites of State Farm, Allstate, GEICO, Progressive and Farmer’s, CFA found that those non-driving factors taken together could increase premiums for low- and moderate-income motorists “often by more than 100 percent.” The profile used in those quotes was a 35-year-old woman with a good driving record seeking minimum liability coverage in Baltimore, Miami, Louisville, Houston and Los Angeles.
“The fact that these families often can’t obtain this coverage helps explain why so many risk fines, or even imprisonment, by driving without insurance,” Brobeck said.
In January, the CFA published a report saying that that rates could be made “fairer, lower and more affordable” if regulators “severely restrict auto insurers from using factors unrelated to driving.”