Study: Lower Education Levels Mean Higher Auto Insurance Rates

A study by the Consumer Federation of America has found that some major auto insurers charge drivers with a high school diploma more for coverage than their higher-educated counterparts. The study of major auto insurance carriers found that Geico and Progressive both weighted rates based on education and occupation, with Progressive giving “somewhat greater weight to education than to occupation.”

Liberty Mutual, Farmers and American Family also use education levels in determining rates, according to the study.

Consumer Federation of America (CFA) surveyed auto insurance quotes in 10 different densely populated urban centers, including Atlanta, Houston, Phoenix and Seattle. The study, conducted between May and June 2013, evaluated the rates of 10 different companies. Using the websites of the respective companies, CFA requested rates for a female driver, aged 30, had driven for ten years with no accidents or moving violations, and had let her insurance lapse for 15 days.

The variable was that in some instances this hypothetical driver was college educated, and in others she had a high school diploma. In some instances, the higher-educated driver was quoted rates 45 percent less than their lower-educated counterpart.

The study also found a sharp spike in rates for drivers living in urban communities, with the hypothetical driver being charged more than $2,500 for minimum coverage by various companies if they live in Hartford, Baltimore and Chicago.

CFA’s director of insurance, Robert Hunter, said in a statement that the rates show that “insurers either are overcharging lower-income consumers or are not interested in serving them.”

“In effect, auto insurers are discriminating on the basis of income and race. States should prohibit the use of these demographic factors that bear no logical relation to insurer risk,” Hunter stated.

Insurance Industry Says Income, Education Have ‘Predictive Value’

Yet, a representative for the insurance industry called CFA’s claims “bogus.”

Insurance Information Institute president Bob Hartwig said that “CFA has been saying such things for many, many years” and called the claim that some insurance companies discriminate against drivers on the basis of race or color “unfounded accusations.”

“Yes, some carriers consider education levels when evaluating the cost of a future loss,” Hartwig told Online Auto Insurance News. The insurers, he explained, “have demonstrated their predictive value to the state insurance regulators. Those insurers [who consider education] wouldn’t bother with it if it wasn’t the case.”

So while some insurance companies may charge higher premiums for drivers with lower education levels, state regulators have approved the actuarial ratings.

“Some insurers don’t use that criteria,” Hartwig said. “But no matter what, there are many other criteria,” including driving history and location.

Hartwig noted the cost of insuring in an urban area is expensive.

“Accidents are more frequent, more vehicles in a smaller space,” Hartwig said. “The cost of treating injuries is higher. The rate of litigiousness is higher, and you wind up with a situation where it is more expensive to get a vehicle insured.”

CFA Says More States Need Low-Income Option

CFA cites this admission by the insurance industry as a reason more states need to follow California’s example, which offers low cost auto insurance for lower income drivers with good records. The program has been widely hailed by consumer advocates as a success. The plan can get qualified drivers covered with a minimum liability policy for between $226 and $338.

But Hartwig suggested that companies are already looking to find ways to lower rates to attract these consumers. “If you for any reason, you’re not happy with your coverage, or need new coverage, it has never been easier, to get 10, 12 quotes on your policy using your computer,” Hartwig said. “Every consumer, more quickly than ever, can compare costs between carriers.”

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