Report: Lower-income drivers pay more for car insurance

Washington –- Lower-income drivers should not have to pay more for car insurance, says a director of a national consumer group, but an official at Connecticut’s insurance department says that the higher prices many insurance companies charge these drivers are justifiable.

A report released Monday by the Consumer Federation of America took aim at insurers for using income and education levels when determining car insurance rates.

The report said GEICO charges a plant worker in Hartford with a high school degree 40 percent more for basic annual coverage than it does a plant supervisor with a college degree. Liberty Mutual charges a Connecticut high school graduate premiums that are 10 percent higher than those of a college graduate, the report said.

“Low- and moderate-income people should not have to pay more,” said J. Robert Hunter, director of insurance for the consumer group.

But George Bradner, head of the property and casualty division at the Connecticut Department of Insurance, called the use of education and occupation in rating a policy “actuarially justified,” and said it is one of several criteria insurers use to determine the riskiness of a driver.

“There’s age, how long you’ve been employed, where you live, your marital status…there’s a whole bunch of factors,” Bradner said.

Nevertheless, Hunter said state insurance commissioners should forbid insurance companies from using income, education or occupation when they establish policy premiums. The CFA said the practice is discriminatory  because lower-income and less educated drivers are more likely to be non-white.

But not all insurers use education and/or occupation as a rating factor. Hartford-based Travelers Insurance Co. doesn’t. It referred questions to the Insurance Information Institute. 

Bob Hartwig, the institute’s president, said insurance companies use different underwriting criteria to compete — and the use of occupation and education by some companies like GEICO and Progressive is justified. If all companies used the same variables there would be uniform pricing, he said.

“Insurers collect statistics on the characteristics of drivers for one reason and one reason only — as an indication of loss,” Hartwig said.

The CFA used insurers’ websites to shop for a basic liability policy for a single, 30-year-old woman with a good driving record who earns $30,000 and lives in a moderate-income area. The hypothetical woman drives a 2003 Honda Civic.

The national consumer group used insurers’ websites to shop for a basic liability policy for the same hypothetical driver: a single, 30-year-old woman with a good driving record who earns $30,000, lives in a moderate-income area and drives a 2003 Honda Civic. 

It targeted the 10 largest insurance companies in 10 urban areas, including Hartford. 

All states, except New Hampshire, require drivers to purchase at the very least a basic liability policy that covers damages to others but not the policyholder’s losses.

The CFA said the high cost of insurance is the reason as many as 30 percent of low-income drivers lack insurance.

“Since most Americans need a car and almost all states require the purchase of auto insurance, many lower-income workers are faced with the choice of paying these high, and often unaffordable prices, or breaking the law,” said Stephen Brobeck, executive director of the federation.

The CFA’s study also determined that companies charged widely different premiums for the same coverage and different premiums for the same coverage from city to city.

In one study,  premiums for basic coverage in Hartford cost more than in other cities surveyed, including Chicago, Houston and Oakland, Calif.

The CFA found that if the 30-year-old driver lived in Hartford, she would pay a high of $3,222 a year for basic liability coverage from Allstate and a low of $949 for thein same policy from State Farm.

Nearly every insurance company surveyed would charge the driver more for living in Hartford than in Chicago, Houston or Oakland. Only if she lived in Baltimore would the driver’s premiums be higher than those in Hartford, the report said.

Bradner, of the Connecticut Department of Insurance, said the study must not have compared “apples to apples” when comparing rates for the woman driver.

“In our state we have a very healthy, robust, marketplace,” Bradner said. “And we encourage people to shop around.”

The Connecticut Department of Insurance also noted that regional differences in the cost of materials and labor to repair a car and the cost of medical care can also affect premiums. So can the amount of traffic on the streets.

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