Survey Finds Auto Insurance Rates Higher for Low-Income Drivers

You may be a good driver but if you live in a moderate- or low-income neighborhood, you’re probably paying higher auto insurance rates than people who live in upscale parts of town, as much as $1,500 just for minimal liability coverage.

Those are the disturbing findings of a new survey of four of the largest auto insurers in 15 cities. Between them, the companies hold half of all policies in the country.

The Consumer Federation of America went to the websites of Geico, State Farm, Allstate and Progressive and elicited rate quotes for men and women by plugging in the same data. Each person was single with one dependent, lived in a moderate income ZIP code and was a high school graduate with a low-income job. And each had an outstanding driving record with no accidents or moving violations.

Rates were requested for minimal liability (which usually covers bodily injury costs to some extent) with no comprehensive coverage (you would not be paid for the car’s value if you totaled it).

Quotes varied wildly. For example, in one city price quotes from these companies for the woman ranged from $762 to $3,390.

J. Robert Hunter, CFA’s director of insurance and a former Texas Insurance Commissioner, says a good competitive market has a premium price range of just 15 to 20 percent. “This proves there’s not much competition in these [low-income] areas,” he says. Higher-income neighborhoods do have competition, driving down the rates.

Louisville, Ky., Boston, Mass., Baltimore, Md., and Miami, Fla., had the highest rates at more than $2,000 per policy.

Hunter called on the state insurance commissioners to investigate this disparity and examine the fairness of the ratings factors that insurers are allowed to use, such as credit score, education, ZIP code and income level.

“This is a serious issue, one that tremendously disadvantages low- to moderate-income families,” Hunter says.

But a spokesman for an industry group takes issue with the survey, saying it doesn’t draw any conclusions.

“It may be that certain companies are less interested in writing business in certain ZIP codes in certain cities than other insurers,”  says Robert Detlefsen, vice president for public policy at the National Association of Mutual Insurance Companies, which represents 1,400 insurers. “But the real question for consumers is how much does it cost to buy a minimum liability insurance policy if my objective is to find the cheapest coverage available in the market?”

Marty Schwartz, president of the non-profit Vehicles for Change, which makes inexpensive cars available to lower-income families, says automobiles are the “number one poverty-fighting tool” for such households. He says average annual wages go up by about $7,000 a year when a family owns a car and can use it to get to work.

“The biggest barrier to car ownership for many lower-income drivers is not the price of the car but the price of car insurance,” Schwartz says. “Insurance charges often exceed the cost of car payments.  This is an important reason that some drive without insurance.”

Some 14 percent of drivers nationwide do not carry insurance coverage, according to the latest estimates by the Insurance Research Council.

Photo credit: flickr.com