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Unfair Insurance Pricing? You Decide!

If you thought safe driving habits earned you lower rates on insurance, you might be surprised to find out that it isn’t necessarily the case. In fact, a new study shows that the opposite may be true and that safe drivers might be charged higher rates than other drivers.

The Consumer Federation of America, conducted a study that showed rates for auto insurance aren’t necessarily lower for safe drivers. They used two imaginary drivers and obtained insurance quotes for them in different U.S. cities.  The hypothetical drivers were both 30-year-old women who lived in similar zip codes and had the same amount of driving experience. Both sought the minimum insurance coverage for their state.

Driver #1 was single, had an immaculate driving record with no accidents or tickets, rented an apartment and had been without insurance for 45 days. She had no college education. Driver #2 was married, owned her home, had a graduate degree and earned more money than Driver #1.  She’d had an accident within the last three years that was her fault and had resulted in $800 in damage. You’d think that Driver #2 would have been quoted a higher rate due to the accident, wouldn’t you?  Think again.

According to the CFA report: “In two-thirds of the 60 cases studied, large auto insurers quoted higher premiums to safe drivers than to those responsible for an accident. And in more than three-fifths of the cases with these higher premiums, the premium quoted the safe driver exceeded the premium quoted the unsafe driver by at least 25 percent.”

Why do you suppose the married woman – Driver #2 – with a higher level of education, a bigger salary and an at-fault accident on her record was quoted less than Driver #1 with the clean driving record? There’s really only one conclusion you can draw, which is that more education, and a bigger salary get you discounts on insurance, no matter what your driving record. 

The CFA came to the same conclusion – and they’re not happy about it. They contend that penalizing drivers for earning less money and having less education is unfair. They’re urging insurance legislators to ban the practice.  They’ve been successful in many states in getting legislators to prohibit insurers from using gender to calculate auto insurance rates.

The Insurance Information Institute responded to the CFA study, saying that pricing for auto insurance is fair because dozens of companies are constantly competing for driver’s business, which gives consumers plenty of choice. “The price is risk-based, and always will be,” said Dr. Steven Weisbart, senior vice president and chief economist at the institute.

According to an article in the National Insurance Journal,, the III stated that insurance rate structures are stringently reviewed by state insurance regulators and the criteria currently being used, which includes driver age, gender and credit scores, is fair.

Furthermore, the III stated that drivers have seen insurance rates decline to an average of $791.22 in 2010, a figure that’s 3% less than the 2006 average of $817.99.

It remains to be seen who will win the fight to determine whether insurance companies can continue to use consumer earnings and education data in structuring rate prices.