Study: Car insurance varies by income, not record

Insurance companies often offer lower premiums to affluent drivers with a record of accidents or violations than moderate-income drivers with good records, according to a consumer study released Monday.

But a trade group representing insurers called the study "rigged" and the conclusion that premiums are related to socio-economic factors "categorically wrong."

The Consumer Federation of America compared prices for five insurers in 10 cities. A moderate-income driver with a perfect record was charged more in 20 out of 38 price comparisons than a higher-income driver who caused an accident in which someone was injured, according to the study.

The insurers wouldn’t always cover a driver with a conviction for driving under the influence of alcohol. But among those that did, 70% charged the moderate-income driver with a clean record more than an upper-income driver with a DUI conviction, the study found.

“This of course is a staggering finding,” said Doug Heller, an insurance consultant who conducted research for the group. “This is clear evidence to us that some insurers are not actually basing premiums on risk.”

But Dave Snyder, vice president of the Property Casualty Insurers Association of America, said the study based on hypothetical customers is mistaken because insurers don't consider income in setting rates. Premiums must be based on the risks that a driver represents under measures that state regulators monitor, he said.

“It’s fundamentally flawed because no insurance company uses income as a rating factor, and no state would permit it," Snyder said of the study.

The consumer group tested insurance costs for two 30-year-old women who had been licensed for 14 years. Each drove a 2006 Toyota Camry about 10,000 miles a year.

But one posed as a bank executive with a master’s degree who was married and owned her home. The other was a bank teller with a high-school diploma who was single, rented her home and hadn’t been insured for six months.

The insurers were Allstate, Farmers, Geico, Progressive and State Farm. The cities were Atlanta, Baltimore, Chicago, Jacksonville, Jersey City, Kansas City, Los Angeles, Minneapolis, Oklahoma City and the Queens in New York City.

The comparisons tested whether an injury accident, a drunken-driving conviction or violations for speeding 20 mph over the limit or running a red light hurt the more affluent driver.

Overall, the study requested 600 insurance quotes and got 464 responses. Of the 136 without a comparison, 28 involved a company refusing to provide a quote to a moderate-income driver while providing one for an upper-income driver, according to the study.

In most cities, Progressive and Geico charged the lower-income driver more than the higher-income driver with a worse record, the study showed.

For example, Geico offered the moderate-income driver in Baltimore a policy for minimum liability insurance for $2,612 per year with a perfect record and $4,698 with a reported accident and speeding ticket in the last year, Heller said. But the upper-income driver with an accident and a ticket was offered a policy for $2,040.

“This leads to classic, unfair discrimination,” Heller said.

Progressive referred questions about the study to the insurance association and Geico didn't respond to a request for comment.

State Farm was the most fair among the insurers tested, while remaining the largest writer of car insurance in the country, according to the study.

Snyder said the study ignored significant factors such as the driver having obtained insurance recently, which he said indicates a lack of continuity in driving and experience.

“We think their hypotheticals are rigged," Snyder said. "The notion that insurers are somehow pricing automobile insurance on economic factors is categorically wrong."

The consumer and insurance groups agreed on one point: Customers should shop around.

Bob Hunter, director of insurance for Consumer Federation of America, said comparing prices is key to finding better rates. The former Texas insurance commissioner said that state invited 25 drivers to shop for policies with a guide the government created and found they could save $125 on average.

After publicizing the study, the state got 70,000 requests for copies of its brochure before the information was available on the internet, Hunter said.

“Shopping can really save you money,” Hunter said. “It’s so easy for someone to be charged twice what another company would charge them if they don’t shop.”

Snyder said shopping is important because one company might weight a factor in someone's driving history more heavily than another.

“It is a uniquely competitive market," Snyder said.