Should Socioeconomic Factors Affect the Price of Car Insurance?; Insurers Are Using Education, Income Level and More to Determine Rates
Gallagher, Jim, St Louis Post-Dispatch (MO)
What you pay for car insurance depends on more than what you drive and how you drive it.
It depends on where you live, your credit score, and sometimes your occupation and education level.
High school dropouts may pay more than people with master's degrees even when the well-educated have worse driving records. Janitors may pay more than business executives. People who rent may pay more than home owners. People who live in poor, crime-ridden parts of town will pay much more than others.
Of course, your driving record affects this too, as does the car you drive.
Insurers say it's all an effort to match rates to the risk presented by a driver. Critics, however, say insurers are discriminating against the poor.
The rate differences can be dramatic.
If you live in ZIP code 63147 which stretches along north Broadway into the city's Baden neighborhood count on paying the highest auto insurance rates in the St. Louis area.
Residents of other poor city ZIPs face also face high rates, according to a rate analysis by Carinsurance.com, an online auto insurance market.
A good driver might pay $1,974 to cover a 2012 Honda Accord in the 63147 ZIP, according to the survey, which averaged the rates of six big insurance companies.
Move the same car and driver to the southern or western suburbs such as Crestwood or Chesterfield and its owner would save about $700. Move it to the far suburbs of Metro East such as O'Fallon or Columbia and the savings are about $1,000.
Insurance companies say claims statistics explain much of the difference. Payouts are higher in areas plagued by theft and vandalism. Areas of dense population also produce more accidents, they say.
All the other factors used in rating be it late payments on credit cards or the absence of a high school diploma can be directly tied to a person's chances of filing an auto claim, says Steven Weisbart, chief economist at the Insurance Information Institute, an industry organization.
The object of rating is to group people of similar characteristics, then charge them by the claims record of that group. "To most people, that seems fair," says Weisbart.
Consumer advocates say something sneakier is going on. They say insurers are using factors designed to screen people by wealth, as well as risk, figuring that they can sell more financial products to people with money.
Critics complain less about ZIP code ratings than they do about the use of factors such as education, job titles, marital status, credit scores and home ownership.
Companies often charge a poor but safe driver more than a well- off but dangerous one, according to the Consumer Federation of America.
The group last month released a survey of auto rates in 12 cities, including St. Louis. It compared rates offered two 30-year- old women living on the same street in a middle-income ZIP code looking for equal auto coverage.
One was single, a high school grad who rents her home and work as a receptionist. She had a clean driving record but had been without insurance for 45 days.
The other driver was a married executive with a master's degree who owns a home. She was at fault for an accident that caused $800 in damage.
"In two-thirds of the 60 cases studied, large auto insurers quoted higher premiums to safe drivers than to those responsible for an accident," the federation reported. In most cases, the difference was more than 25 percent.
"State insurance regulators should require auto insurers to explain why they believe factors such as education and income are better predictors of losses than at-fault accidents," said Robert Hunter, the federation's insurance director, and a former Texas state insurance commissioner.
In St. Louis, Progressive offered a higher rate to the receptionist. Farmers Insurance didn't offer coverage to the receptionist at all, although it would cover the executive. …