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Study Finds Non-Driving Factors Considered by Insurers Unfair By Consumers

A nationwide survey which was conducted by ORC International for the Consumer Federation of America (CFA) found that consumers find it unfair when insurers considers factors unrelated to driving when computing an auto insurance premium. Insurers disputed the survey results claiming that pricing processes are complicated and non-driving data is absolutely necessary to compute a fair price.

The study incorporated responses from 1,100 consumers. Factors such as education levels and previous insurance coverage were among the most disputed factors and were perceived to discriminate against lower income drivers.

Stephen Brobeck, CFA executive director, said in a statement, “These factors have nothing to do with driving and discriminate against lower-income drivers, premiums should largely reflect factors … over which drivers have some control and which directly affect insurer costs.”

The survey asked the question: “How fair do you think it is for insurers to use each of the following factors in deciding on an auto insurance price for a driver?”

Survey respondents felt that the number of traffic accidents a driver has had was the number one factor that should be considered when an insurer is calculating a premium with 87 percent saying that was a very or somewhat fair factor. Considering the gender of the driver was only found to be fair by 30 percent of consumers, finishing last in factors that should be considered.

Here is a complete listing of the survey’s findings and the percentage of drivers saying that the factor asked about was very or somewhat fair:

  • Traffic accidents caused: 87 percent
  • Moving violations like speeding tickets: 85 percent
  • Number of years with a license: 74 percent
  • Age: 66 percent
  • Miles driven: 61 percent
  • Location of residence: 45 percent
  • Occupation: 33 percent
  • No previous insurance because no car: 32 percent
  • Level of education: 31 percent
  • Credit score: 31 percent
  • Gender: 30 percent 

Insurers Disagree

The Property Casualty Insurers Association of America (PCI), the insurance industry’s largest trade group disputed the findings. The PCI represents over 1,000 insurers. In a statement issued by the PCI they called the CFA’s findings a “mostly misguided public policy prescription that would be “counterproductive and hurt most motorists, resulting in higher costs and fewer choices for all consumers.”

The PCI insists that non-driving factors are just as important as driving information in the complex task of computing premiums. According to Alex Hageli, PCI director of personal lines, “When blended together, these factors help to ensure that low-risk consumers can be better identified and pay less for insurance.”

PCI maintains that many consumers and even legislators do not understand how a premium is calculated or why they use certain factors. They feel that once consumers understand that they will receive a more accurate and in most cases, a lower rate when credit information and other data are included that they will support the use of non-driving data.

While CFA recommended that insurer regulations be tightened, PCI disagreed saying that consumers benefit from lower rates and greater choice when insurers are able to use the most accurate rating and underwriting tools. PCI claims that further restrictions will lead to premium increases for lower risk consumers.

CFA found in a separate analysis where they used quotes from the websites of the major insurers that when all added up, the non-driving factors could actually increase the premium of low and moderate income drivers by more than 100 percent. The CFA also published a report in January which made the argument that rates could be “fairer, lower and more affordable” if regulations severely restricted insurers from using non-driving factors.