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Unfair Auto Insurance

Unfair Auto InsuranceLive in a low-income ZIP code, have just a high school education and a work low-paying job? Well, prepare yourself to know there is nothing “low” about your auto insurance premiums even if your driving is good and you have no accidents.

The country’s five largest auto insurance companies do not make a basic auto insurance policy available to typical safe drivers for less than $500 per year in over 2,300 urban and suburban ZIP codes including 484, or more than a third, of the nation’s lowest-income ZIP codes.

The revelations come from our good friends at the Consumer Federation of America (CFA).

Here is what the CFA found from extensive research and analysis of 81,000 premium quotes for State Farm, Allstate, Farmers, Progressive, and Geico.

The CFA study clearly exposes the unfairness in the auto insurance business.

In 24 of the 50 urban regions, there was at least one lower-income ZIP code where annual premiums exceeded $500 from every major insurer. In nine of these 50 areas – Miami/Ft. Lauderdale, Detroit, Minneapolis/St. Paul, Tampa/St. Petersburg, Baltimore, Orlando, Jacksonville, Hartford, and New Orleans – prices exceeded $500 in all lower-income ZIP codes.

CFA also released findings from a recent national survey by ORC International indicating that more than three-quarters of Americans (76 percent) believe that a “fair annual cost” for state-mandated insurance for a typical good driver with no accidents and no tickets should be less than $500, while two-fifths of Americans (40 percent) think that this driver should pay less than $250 per year.

Over the past three years, CFA has prepared and released a series of reports on annual premiums quoted to a typical moderate-income good driver by major auto insurers for required liability coverage in selected cities. These reports indicated that insurers usually quoted premiums of more than $500, often quoted premiums exceeding $1,000, and sometimes quoted premiums greater than $2,000 for this state-mandated auto insurance. The reports also revealed that the insurers use rating factors, such as education and occupation, that tend to disadvantage low- and moderate-income drivers. But the reports only collected data on price quotes for a typical good driver at a single address per city. And insurers provided the quotes without obtaining information on the driver’s credit score.

To address these limitations, CFA reviewed January 2014 data on auto insurance premiums charged to a good driver – a 30-year old, unmarried woman, with a high school education and clerical job who rents her home and has a “fair” credit-based insurance score (the middle category of a 10-category range from excellent to poor) – from Quadrant Information Services for all U.S. ZIP codes. CFA then analyzed the data focusing on annual premiums charged by the five largest auto insurers – State Farm, Allstate, GEICO, Farmers, and Progressive (who, together write 54 percent of premium in the U.S. auto insurance market) – in 50 large urban regions and further broke out the prices charged in those areas’ 1,377 low- and moderate-income ZIP codes (with median household incomes in the first or second income quintiles – below about $40,000).

This detailed analysis of 13,629 price quotes in lower-income ZIP codes revealed that:

1. In 484 (or 35 percent) of the 1,377 lower-income ZIP codes, the driver could not purchase the minimum required insurance for under $500 per year from any affiliate of the five major insurers. In 140 of these ZIP codes, she could not find a quote under $750 from these insurers.

2. In 87 percent of these ZIP codes, the average premium charged by the five insurers for minimum state required auto insurance was above $500; in 26 percent of the ZIP codes, this average exceeded $1,000; and in nine percent of the ZIP codes, the average exceeded $2,000.

3. In 14 percent of the ZIP codes, at least one of the major companies quoted a basic coverage premium that exceeded $3,000.

CFA also analyzed prices in all 8,222 ZIP codes in the 50 urban areas, including middle- and upper-income communities. This analysis of 81,350 quotes from the five large insurers revealed that in 2,330 (28 percent) of the ZIP codes, the driver could not find mandated insurance from these insurers for under $500. Additionally, CFA reviewed the premium quotes from an additional 58 insurance companies – comprising a total of 207 insurance affiliates including those of the five largest insurers. Here, similar to data from only the five largest, CFA found that in 33 percent of lower-income ZIP codes, a $500 policy was not available for a typical good driver and in 80 percent of the ZIP codes the average premium exceeded $500.

The report notes that the majority of drivers in the lowest-income ZIP codes reviewed earn less than $21,000 per year, making even a $500 policy a difficult financial burden.

Additionally, the CFA report noted that, for several years, a California insurance program has made available liability coverage to lower-income good drivers for $226 to $338 per year, depending on county of residence. By law, this program is required to charge premiums that cover claims paid and is not subsidized by taxpayers or other drivers.

To read the full CFA research visit: :

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