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Outcry over auto insurance ratings

By Jay MacDonald ·
Friday, September 28, 2012
Posted: 10 am ET

Consumers say it's unfair for auto insurance companies to use personal details such as gender, employment and education to set policy rates, according to a survey from the Consumer Federation of America, or CFA.

First, some background. As I previously blogged, CFA took aim this summer at the nation's four largest auto insurers -- Allstate, GEICO, Progressive and State Farm -- for quoting what the group said were excessively high rates online for state minimum liability coverage.

How high is high? More than half (56 percent) of drivers in 15 moderate-income communities around the country were quoted annual rates of more than $1,000, and a third (32 percent) were quoted more than $1,500 for no-frills, rock-bottom, state-required policies for two drivers with clean records.

Separately, CFA said it also found that insurance companies routinely weigh such personal factors as your gender, occupation, level of education, where you live and whether you had auto insurance previously before they decide how much to charge you for coverage.

In the new study, CFA compared online quotes for minimum coverage for a 35-year-old woman with a good driving record from the same four insurers as well as Farmer's. Together, the five represent half of the private auto insurance market. The results: Most quotes were higher when the woman was single, a renter in a moderate-income neighborhood, a high school graduate, a bank teller or clerical worker, and if she lacked continuous insurance. In three scenarios, Allstate, Farmer's and State Farm in Miami did not provide any quote.

If those findings don't sit right with you, you're not alone.

According to its survey of 1,010 adults, CFA found few consumers think it's fair for insurers to set rates based on gender (OK with just 30 percent), credit score (31 percent), education (31 percent), previous insurance (32 percent) and occupation (33 percent). Fewer than half (45 percent) found that where you live was an acceptable discriminator, while miles driven (61 percent), age (66 percent) and number of years licensed to drive (74 percent) seemed fair or somewhat fair to more than half of those surveyed.

"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," said CFA executive director Stephen Brobeck. "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."

What's your take? Are insurers justified in crunching your personal details into their risk models?

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November 12, 2012 at 6:42 pm

Everyone is an individual and will value safety more or less based on that, it should be "innocent" 'til proven guilty (not stereotyping).

October 01, 2012 at 12:36 pm

If there is clear statistical evidence that stratifying individuals according to the parameters listed above corresponds to different degrees of risk, then it is absolutely fair to charge different premiums.

I've heard for decades that men are more dangerous drivers than are women (presumably based on number of accidents, degrees of damage, etc.) but if the hard data doesn't support this then I don't see why insurance companies should charge more to men. Likewise for all the other variables.

Think about it this way: if they don't charge more for higher-risk individuals then the rest of us low-risk folks pay more than we should. In what world is *that* fair?

September 29, 2012 at 2:31 am

The only "unfair" thing listed in the first paragraph was gender. Education and work are incredibly important for determaning risk and are 2 variables every individual has control over.