The amounts drivers pay for their car insurance premiums are based on confounding algorithms that increasingly have more to do with socioeconomic factors than driving habits, according to extensive research conducted by Consumer Reports.
The organization, which believes that knowledge about the going rate of any product or service is a fundamental consumer right, has released the findings of a two-year, in-depth car insurance investigation. The report analyzed more than 2 billion price quotes for sample drivers that were obtained in August and November 2014 from more than 700 companies across all 33,419 general U.S. ZIP codes. The report includes Amica and USAA, which have been consistently top-rated for claims satisfaction by tens of thousands of Consumer Reports’ subscribers since the late 1990s, and the largest insurers operating in each state, which usually included Allstate, Geico, Progressive, and State Farm. For companies that had more than one subsidiary in a state, Consumer Reports used whichever company had the largest in-state market share.
Consumer Reports’ analysis of rates for eight hypothetical single drivers of varying ages found that those individuals who had merely “good” scores paid $68 to $526 more than similar drivers with the best credit scores, depending on which state they called home. In one example, Consumer Reports found that its single drivers in New York with a good credit score and clean driving record would pay an average of $255 more in annual premiums than if they had an excellent credit scores. In another example, in Florida, CR’s group of adult single drivers with a clean driving record and poor credit paid $1,552 more on average than if the exact same drivers had excellent credit and a drunk driving conviction.
“Consumers have a right to expect that their car insurance premiums are based on meaningful behavior such as their driving record, and not on such factors as how they shop, pay their bills or how likely they are to tolerate that their rates have been hiked up,” said Consumer Reports Editor in Chief Diane Salvatore. “ The insurance industry spends over $6 billion on advertising that only confuses the issue and makes light of the significant expense. We hope that our enterprising journalism will spur consumers to join forces with us and demand reforms and transparency in pricing.”
Car insurance companies often boast about some of the different ways that customers can save money. But Consumer Reports’ study revealed that some of the most advertised discounts—such as the ones for bundling home and car insurance, or installing anti-theft equipment—actually don’t save people much money. Bundling home and car insurance would save a typical policyholder just $97 a year; adding anti-theft equipment would save just $2 annually, when looking at national averages.
Consumer Reports’ investigation also found that the promise of significant savings for student-driver training turned out to be little more than a mirage. In fact, the student-driver training discount was worth very little—a piddling $63 in annual savings nationally for CR’s sample family. The discounts were worth more, however, in Louisiana ($155), California ($334), and Massachusetts ($386).
For more findings from Consumer Reports car insurance investigation, including a state-by-state look at how credit scores impact car insurance premiums and a guide to help consumers shop for the best deal where they live, go to: ConsumerReports.org/FixCarinsurance.
Consumer Reports used the mathematical pricing formulas that insurers must file with almost all regulators in almost every state to help evaluate and compare premiums across the United States. Under the state laws that regulate automobile insurance, carriers are required to adhere to the prices generated by their public rate filings.
Consumer Reports found that most car insurance companies cherry-pick about 30 of the almost 130 elements in a credit report to create their own score for each policyholder that’s very different than a FICO score—and secret. If a car insurance company calculates that a consumer’s credit score isn’t up to its highest standard, it often charges a higher premium—even if the customer had never had an accident. California, Hawaii, and Massachusetts are the only states that prohibit insurers from using credit scores to set prices.
Consumer Reports’ investigation illuminates some of the worst practices and demonstrates the real cost to consumers in dollars and cents, and the organization is asking consumers to join forces with them in demanding that insurers—and the regulators charged with monitoring them—adopt price-setting practices that are more meaningfully tethered to how consumers drive.
The organization is encouraging consumers to tweet the National Association of Insurance Commissioners @NAIC_News to “Price me by how I drive, not by who you think I am! #FixCarInsurance.”
Consumer Reports September Issue has also included a special cut-out petition that drivers can sign and return to the organization—which it will collect and deliver directly to their state insurance commissioner. You can also pick up the phone; dialing 855-384-6331 will connect you directly to your state insurance commissioner.
In its analysis, Consumer Reports created driver profiles for a cross section of hypothetical policyholders. There were 20 profiles in all, for individuals ranging in age from 16 through 75, men, women, some married, some with a teenage driver. The policyholders were assigned the same “base” profile, including a perfect driving record and excellent credit. They were assigned popular vehicles, in most cases the Toyota Camry LE, and Honda Accord LX. Each profile bought standard liability coverage, and also bought uninsured/underinsured motorist protection for the same amounts, and collision, comprehensive, and Med Pay or personal injury protection.
Consumer Reports’ complete special investigation “The Truth About Car Insurance,” is featured in the September issue of Consumer Reports. The 10-page feature includes more insurance rate analysis from Consumer Reports, a comprehensive guide to smart shopping for insurance rates, and tips on how to fight unfair pricing. More information is also available at www.ConsumerReports.org.