Auto insurance companies accused of discriminating against low-income rural drivers

Consumer advocates say low-income drivers in some rural areas "are routinely priced out of insurance coverage because they are judged not just by their driving records but by their credit scores, occupation, education level or other factors," Sarah Breitenbach reports for Stateline. "It’s a discriminatory practice by insurance companies that disproportionately increases premium payments for low-income drivers, said J. Robert Hunter, a former Texas insurance commissioner and director of insurance for the Consumer Federation of America (CFA)."

Some states are trying to stop the practice, Breitenbach writes. "California, Hawaii and Massachusetts prohibit insurers from using credit scores to determine how much drivers should pay. And legislation was introduced this year in almost a dozen others to prevent insurance companies from using credit scores, occupation, education level or other standards in factoring how much they should charge for car insurance, according to the National Conference of State Legislatures."

"California, Florida, Indiana, Maryland, Ohio and, most recently, Pennsylvania, have ruled that insurance companies cannot use 'price optimization'—evaluating consumer data or competitors’ prices to determine whether a customer is likely to shop around—to set prices for policies," Breitenbach writes.

Doug Heller, a California-based consultant to the CFA, said one problem is that insurance companies know that "low-income drivers often are less likely to shop around for competitive rates partly because of lower financial literacy" and "will raise premiums on those drivers because they think they’ll stick with them rather than go to a competitor," Breitenbach writes. Heller told her, “The insurance companies charge the most to the people who can afford it the least. That’s because auto insurance companies place such a large emphasis on their customers’ occupation, level of education, credit history and other factors related to wealth, rather than driving safety.”

Advocates for insurers disagree, saying "they use legitimate tools to set prices based on their financial risk," Breitenbach writes. "Price optimization has actually lowered insurance rates and is likely to create long-term price stabilization, said Robert Hartwig, president and economist at the Insurance Information Institute, a nonprofit communications group supported by the insurance industry. And, he said, auto insurance rates are declining for all drivers, including moderate- and low-income motorists." (Read more)