The Zebra, an auto insurance comparison website offering “a real-time comparison of more than 1,800 car insurance products from over 200 companies nationwide” says that since 2011, auto insurance rates have increased more than 20%.
In a recent report “The State of Auto Insurance in 2018”, the company claims to have found many reasons why some people pay more than others, particularly low-income drivers who can afford the most expensive insurance the least.
Using Big Data and complex formulas to calculate risk, it appears things like credit ratings and education level are having bearings on what someone pays for auto insurance over a driving record consumer advocates say. “We feel that auto insurers have made rampant use of Big Data without adequate scrutiny from the state insurance regulators,” said Chuck Bell, programs director for Consumers Union.
In the report, they found:
- A credit score between 300 – 579 will pay over $100 per month more than someone whose score is over 800.
- People who are unemployed pay the most, while lawyers pay the least.
- Someone without a high school diploma will pay more than someone with a PhD.
- A married person pays less than a single person.
- Renters pay more than home owners.
- Safety and anti-theft features did not lower insurance rates, thought to be because of the cost to repair or replace.
In testimony before District of Columbia, Department of Insurance, Securities and Banking, James Lynch, chief actuary and vice president of research and education at the Insurance Information Institute in New York, said that since 2015 insurance rates have climbed faster than inflation, rising 15% nationwide.
In a ConsumerReports.org article titled, “Price Optimization Helps Car Insurers Figure Out Whether You’re a ‘Schmo’”, they explain how insurance companies track consumer behavior:
“Without your knowledge, insurers mine data about your shopping behavior to uncover trends, such as how many iPhones you’ve bought, whether you remain a loyal customer of one telecom company when another is offering cheaper service, and how much of an increase you accepted when your car insurance policy was renewed in the past. Then your insurer applies its trade-secret algorithms to predict how much of a price increase you’ll tolerate without quitting the company and shopping for a better deal elsewhere.”
Some States Find Controversy in Determining Rates
Some states disallow a few of these practices when determining rates. For example:
Gender: the states of Hawaii, Massachusetts, Michigan, Montana, North Carolina and Pennsylvania do not allow gender to affect rates.
Marital Status: the state of Massachusetts does not allow marital status to affect rates.
Credit History: the states of California, Hawaii and Massachusetts do not allow credit scores and history to affect rates.
Age: the states of California, Hawaii and Massachusetts do not allow age to affect rates.
Location: the state of California does not allow your location to be used as a major factor, stating that a person’s driving record, miles driven annual and experience must be considered before your location.
Price Optimization: some states have banned the practice, such as Pennsylvania, Maine, District of Columbia, California, Florida, Indiana, Maryland, Ohio, Vermont, and Washington.
It is important to know that all the factors discussed above may also be given different weights by insurance companies when determining rates. That means even one change in any of the risk factors discussed above may cause your insurance company to increase rates. Risk factors may also be weighted differently by different insurance companies, therefore causing different rate quotes for the same person.