Rates for Good Drivers in Cities Too High, Too Variable, Says Consumer Group

June 19, 2012

The Consumer Federation of America (CFA) says that most good drivers — those with no accidents or moving violations — who live in moderate-income areas in 15 cities are being quoted what the group maintains are high auto insurance rates by major insurers for the minimum liability coverage required by those states. More than half (56 percent) of the rate quotes to two typical moderate-income drivers topped $1,000, and nearly one-third of the quotes (32 percent) exceeded $1,500.

CFA said its research, which used the websites of the four largest auto insurers nationwide — State Farm, Allstate, Progressive, and GEICO — also revealed that rate quotes are often highly variable. Quotes to the same consumer differ considerably. For example, in one city price quotes from these companies to the same woman ranged from $762 to $3,390.

“It is difficult to understand how insurers can justify charging more than $1,000 a year for minimum insurance coverage to drivers who have perfect driving records for many years,” said CFA Executive Director Stephen Brobeck. “It is also difficult to understand why the same driver is being quoted rates from different insurers that vary so considerably. Insurers say rates reflect risk and cost, but if this in fact is the case, why do their assessments of these factors differ so radically?”

But insurers said it’s not that difficult to understand why the same good driver might receive price quotes ranging from $700 a year to more than $1,900 as the CFA report cited.

“The CFA wants to know why the same person, with a good driving record, is receiving price quotes that vary so widely. The answer is simple. The markets for auto insurance are highly competitive. In addition, the experience of insurers in these markets will differ, leading insurers to price the risk of a prospective policyholder differently,” said Dr. Robert Hartwig, president of the industry-backed Insurance Information Institute (III) and an economist.

Hartwig also noted that the CFA research looked at coverage for what a policyholder is legally obligated to pay as the result of bodily injury or property damage to another person. Bodily injury and property damage related insurance claims payouts are generally higher in U.S. cities compared to payouts in suburban and rural communities, according to the III, which said the CFA study did not explore this issue.

“More importantly, increases in the cost of auto insurance nationwide remain in line with the Consumer Price Index (CPI), rising by less than 3 percent so far in 2012,” Hartwig added.

J. Robert Hunter, CFA’s director of insurance and former Texas insurance commissioner, called on state insurance commissioners to investigate the pricing and variability issues highlighted in the report.

“Given the fact that all states except New Hampshire require drivers to carry auto insurance, insurance commissioners have the responsibility to ensure that these drivers are charged fair, affordable rates. Our research suggests that most rates charged moderate-income drivers are neither fair nor affordable,” said Hunter.

This latest CFA auto insurance rate study comes after the release last January of another CFA report, “Lower-Income Households and the Auto Insurance Marketplace: Challenges and Opportunities.” This report said that for the large majority of lower-income households, “high premiums and disparate treatment help explain why an estimated one-quarter to one-third of lower-income drivers are uninsured.”

For its latest research, CFA sought quotes for minimum liability coverage from the websites of the four largest auto insurers. State Farm, Allstate, Progressive, and GEICO have 48 percent of the auto insurance market nationwide and more than 60 percent of the market in a number of states.

CFA created two hypothetical consumers. Both had good driving records, with no accidents or moving violations in the seven years (man) and 12 years (woman) they had driven. Both also had good credit ratings, were single with one dependent, rented in moderate-income areas (median income around $30,000), had a high school degree, and drove a paid-for 2002 Honda Civic 10,000 miles a year. He was a 27-year old laborer, and she was a 35-year old bank teller. (About one-third of U.S. households have annual incomes less than $30,000.)

The 15 cities surveyed Boston, Washington D.C., Baltimore, Atlanta, Miami, Charleston, Louisville, Chicago, Sioux Falls, Denver, Houston, Phoenix, Las Vegas, Los Angeles and Oakland.

The results included the following:

  • More than half (56%) of the dollar quotes were at least $1,000, while nearly one-third (32%) were at least $1,500.
  • There were more rate quotes at $3,000 and over (4) than under $500 (3).
  • The man was quoted somewhat higher rates overall than the older woman but the difference was not very large — 57 percent of the man’s quotes, and 53 percent of the woman’s quotes, were at least $1,000. And all quoted rates $3,000 and over were to the woman.

There were often substantial differences among rates quoted by the four insurers to either the man or the woman in the same city. In 13 of 30 instances (15 cities for the man and the woman), this price range exceeds $1,000, according to CFA.

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