Consumer Reports released a study last week which was published online that appeared on Yahoo and various other websites. It’s one of the most interesting articles I’ve read on car insurance pricing from a consumer organization in some time. The conclusion of the Consumer Reports study is blue collar drivers pay more for car insurance than do white collar drivers. The amount of the difference isn’t trivial either; it’s $681 a year more on average nationally.
Consumer Reports obtained online quotes from the top 5 car insurance companies including Allstate, Farmers, Progressive, Geico, and State Farm. Four hypothetical profiles were submitted to each of the carriers. These included two male and two female drivers. Each gender was further segmented into two profiles, one corresponding to a white collar worker and the other corresponding to a blue collar worker. Quotes for all four profiles were run on the applicants in 15 different US cities across the country.
The profile and characteristics used are outlined below:
|Characteristics||Higher Economic Status, Good Driver, Male & Female||Lower Economic Status, Good Driver, Male & Female|
|Occupation||Executive||Factory Worker / Bank Teller|
|Educational Attainment||Master’s Degree||High School Degree|
|Car Insurance||Continuous coverage with same company for 3 years||No prior car nor insurance for previous 6 months|
|Average Annual Premium||$1,144||$1,825|
The car insurance policies were quoted with only liability coverage and had no collision coverage. State minimum limits were used for each sample location, and credit was not used as a rating factor.
It is easy to see why Consumer Reports finds these the difference in rates as being unfair based on this criteria, however, I have a couple of concerns with the characteristics used and the assumptions behind them.
- I would have liked to see more “A” rated carriers evaluated including Liberty Mutual / Safeco, Travelers, Kemper / Unitrin, MetLife. Would the results be less skewed if they were included?
- There is a greater risk for a car parked in an apartment parking lot for damage from another vehicle, vandalism, and even theft versus one parked in a driveway or garage.
- There isn’t any way to verify a lapse in coverage for someone who hasn’t owned a car in the past 6 months versus someone who decided not to pay their bill.
- I do not believe credit has any relevance to a person’s driving record and would like to see Texas and other states not use it. Until then, credit should have been included as a rating factor in the states where its usage is allowed. I believe the results would be different if the executive had poor credit and the blue collar driver had great credit.
- Did the study consider many carriers provide a discount to someone who’s been with a company 2 plus years versus someone who changes carriers every 6 months or year?
Even with these issues, I believe the Consumer Reports study raises several excellent questions.
- Should any socio-economic characteristics be used as rating factors? If so, which ones?
- What risk levels do these characteristics have and what are they?
- Are blue collar workers subsidizing lower rates for white collar drivers?
- Were higher limits reviewed in the study? I have seen instances where higher coverage limits resulted in a lower premium.
- What discounts are appropriate to offer regardless of socio-economic status?
If you’d like to read the Consumer Report study, and I’d encourage you to, here’s a link to it (http://consumerfed.org/wp-content/uploads/2016/06/6-27-16-Auto-Insurance-and-Economic-Status_Report.pdf).
There are reasons why car insurance companies charge more for someone who’s single, does not have a college degree, rents, and a lapse in coverage, but what I’m really interested in is what you think! Share your questions, comments, and experiences with me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!