Consumer Reports Concludes that Auto Insurers are Charging Higher Premiums Based on Socioeconomic Status of Customers

By Lauren E. Adler, Attorney at Law

Consumer Reports magazine recently released an investigative report that unveils unfair and often downright untruthful practices of auto insurance companies across the country.  The article, entitled Car Insurance Secrets, was published in the September 2015 issue of Consumer Reports, and is based on extensive research over a 2 year span and 2 billion price quotes.  In this special report, twenty different hypothetical policyholders were analyzed from leading insurance companies.  The hypothetical policyholders were evaluated across 33,419 zip codes, and ranged in age, gender, marital status, driving records, credit scores, and vehicles.

The investigation illumined some of the worst offending insurance practices.  Most notable to us, though, is that insurers are now using personal information—far beyond an individual’s driving record—to calculate price quotes.  How much you pay for your policy is less about your safe driving record, and more about your socioeconomic profile.

Insurers are now evaluating an individual’s financial status to determine how much they will charge for auto coverage.  They do not, however, use the traditional FICO credit score to make this assessment.  Instead, they have created their own version of a credit score, by cherry picking about 30 of the 130 FICO criteria elements.  This insurance “credit score” is designed to predict the odds that a person will file a claim for insurance benefits in the event they are injured in a collision.

People with lower credit scores are assumed to be more likely to bring a claim to recover benefits if they are hurt, therefore cutting into the insurance company’s profit.  Those people’s premiums are inflated accordingly.

The result is baffling and blatantly unfair: higher insurance premiums fall on those in a lower socioeconomic status, regardless of whether they are likely to actually cause a collision. 

This also means that insurers are making money from collisions that may never happen.  They are charging more for insurance coverage based on the likelihood a person would bring a claim for their injuries, instead of the likelihood that that person would actually be involved in a collision.

The unfairness of this practice is compounded by insurance companies having no obligation to disclose the “credit score” they are considering to their insureds.

This practice is discriminatory, unfair, misleading, and contrary to principals of public safety and fairness.  It is designed for the simple purpose of increasing insurance profit, and is directly contrary to the “good neighbor” or “good hands” images that insurance companies advertise for themselves.

Apart from basic considerations of social justice, the practice is also concerning because reckless or careless drivers remain immune, so long as they have a good credit score.   These drivers are not being penalized for causing collisions and putting others on the roadway in danger, nor are they incentivized to drive safely to protect a low premium.

Only three states in the U.S. prohibit insurance companies from using credit scores to determine insurance rates, but Washington State is not one of them.

This is just another example of auto insurers continuing to take advantage of those who are vulnerable, who have little or no knowledge of the insurance process or ability to effectively protect their interests.

To speak out against this discriminatory practice or find out more information, visit www.consumerreports.org.  There is a petition to sign called “Price Me By How I Drive, Not by Who You Think I Am” that will circulate the Insurance Commissioners of all 50 states and members of the National Association of Insurance Commissioners.