Michigan Internet Marketing Club: Consumers Union Testifies About Unfair Car Insurance Pricing

Consumers Union Testifies About Unfair Car Insurance Pricing

When it comes to car insurance, how much you pay could have little to do with how well you drive.

That’s something Richard Harbaugh and his wife, Kathleen Spencer, of Duluth, Minn., found out first-hand. The couple—he’s retired from the military and she was a nurse for 30 years—say they never made a claim on their car insurance in the six years they had the policy, yet their premium kept going up. When they called their insurance company to complain, Harbaugh says they were told their rate reflected the fact that they didn’t have a credit card. They were advised to get one and use it on a regular basis to raise their credit score.

“My wife doesn’t believe in being in debt, so we didn’t use credit cards,” says Harbaugh. “I don’t see why we should be penalized for that.”

Today, Norma Garcia, a senior attorney for Consumers Union, the policy and advocacy arm of Consumer Reports, shared Harbaugh’s story—and similar stories from thousands of Americans—in testimony about unfair car insurance pricing at the annual meeting of the National Association of Insurance Commissioners in Washington, D.C.

Garcia also delivered a petition signed by more than 15,000 consumers calling on state insurance commissioners to ban the use of non-driving factors such as credit scores when calculating premium prices. Instead, she said, premiums should be based mainly on a policyholder’s driving record, miles driven, and years of driving experience. “By relying heavily on these non-driving factors when pricing insurance, many good drivers end up getting unfairly penalized with higher premiums,” Garcia said.

Time for Reform

Garcia’s testimony follows the publication of “The Truth About Car Insurance,” Consumer Reports’ investigation of the car insurance industry. We analyzed more than 2 billion car insurance price quotes from 700-plus insurance companies across every U.S. general ZIP code to get at the heart of how insurance companies determine what to charge you. We found that socioeconomic factors weighed heavily. For instance, we found that a driver with an unblemished driving record who had a less-than-stellar credit history could pay more—often significantly more—than a driver with an excellent credit score and a drunk driving conviction.

A new report from the Consumer Federation of America described another disturbing trend: A female driver who lived in a predominantly African-American community could pay much more for car insurance than a female driver who lived in a mostly white neighborhood, even when all other factors were equal. The study found that in ZIP codes where more than three-quarters of the population were African American, premiums were 70 percent higher, on average, than they were in communities where the population was less than one-quarter African-American.

Consumers Union is urging the NAIC to undertake a number of reforms to address such inequities in car insurance pricing. Among them:

State insurance commissioners should ban insurers from using non-driving factors when setting premiums, including credit data/scores; education level; occupation; marital status; and price optimization (the practice of charging higher rates to policyholders who fail to shop around for a better deal).
The NAIC should conduct a market survey to learn more from insurers about their rating practices involving non-driving factors that are unfairly driving up car insurance rates.
The Federal Insurance Office should collect data from insurers to evaluate auto insurance access and affordability.