Auto Insurers Penalize Good Drivers with Higher Premiums Because Of Credit Histories & Other Non-Driving Factors

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Consumers Union To Urge Regulators to Ban Non-Driving Factors for Setting Premiums at National Association of Insurance Commissioners Hearing on November 19

Auto insurance premiums should be based on your driving record, not your credit score, occupation or whether you graduated from college.

Many good drivers pay higher insurance premiums because of their credit history and other factors that have nothing to do with their driving record, according to Consumers Union, the policy and advocacy division of Consumer Reports. The consumer group will urge regulators to ban the use of credit histories and some other non-driving factors for setting premiums at a National Association of Insurance Commissioners (NAIC) hearing on November 19.

“Auto insurance premiums should be based on your driving record, not your credit score, occupation or whether you graduated from college," said Norma Garcia, senior attorney for Consumers Union. “But many insurers rely heavily on these non-driving factors when pricing insurance and good drivers may be unfairly penalized with higher premiums.”

Garcia will testify at the NAIC hearing, highlighting recent Consumer Reports research and the stories of consumers showing how the use of credit histories and other non-driving factors hurts many good drivers. During her testimony, she’ll deliver a petition signed by over 15,000 consumers calling on state Insurance Commissioners to ban the use of non-driving factors like credit scores so that premiums are based mainly on a policyholder’s driving record, miles driven, and years of driving experience.

A recent Consumer Reports analysis found that credit histories may have more to do with how much consumers pay for auto insurance than any other factor, including arrests for drunken driving. The analysis was part of a review of more than 2 billion price quotes for sample drivers obtained in August and November 2014 from up to 19 companies per state across all general zip codes in the country. Consumer Reports found that single drivers paid a median of $190 more for merely having “good” credit compared to those consumers with the best credit. That difference was $1,200 for consumers with “poor” credit scores.

Consumer Reports also found that, for those states that do not prohibit the use of credit scores, more than 75 percent of the premiums were higher for good drivers with poor credit than those with a drunken driving arrest and excellent credit. The median difference was $700. In some states they paid significantly more.

The insurance industry’s use of credit scores, occupation, and education level for setting premiums has an especially negative impact on low income consumers, African Americans, and Latinos. Government data and other research show that these rating factors closely correlate with race and income. Insurers are prohibited from considering race and income to price insurance in all states.

A new report released by the Consumer Federation of America today found that good drivers in predominantly African American communities pay much more for auto insurance than good drivers in mostly white neighborhoods. The report found that in communities where more than three-quarters of the residents are African American, premiums are 70 percent higher, on average, than in those communities that are less than one-quarter African American ($1,060 compared to $622).

“It seems clear that low income consumers and people of color are hit hardest by insurance pricing based on socioeconomic factors instead of driving records,” said Garcia. “It’s time for regulators to bring some fairness to the insurance market by banning these practices.”

Consumers Union is urging a number of reforms to address the inequities in auto insurance premiums, including:

  • 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 whose shopping history shows they may fail to shop around for a better deal)
  • The NAIC should conduct a market conduct survey to learn more from insurers about their rating practices involving non-driving factors
  • The Federal Insurance Office should collect data from insurers to evaluate auto insurance access and affordability.

Consumers Union is the public policy and advocacy division of Consumer Reports. Consumers Union works for health reform, food and product safety, financial reform, and other consumer issues in Washington, D.C., the states, and in the marketplace. Consumer Reports is the world’s largest independent product-testing organization. Using its more than 50 labs, auto test center, and survey research center, the nonprofit rates thousands of products and services annually. Founded in 1936, Consumer Reports has over 8 million subscribers to its magazine, website, and other publications.

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Michael McCauley
Consumers Union
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David Butler