WASHINGTON – A Phoenix driver with only a high school diploma could be charged as much as 12 percent more in auto insurance premiums than a plant supervisor with a college degree, according to a report released Monday.
The Consumer Federation of America report looked at how 10 insurers in 10 cities, including Phoenix, might charge a 30-year-old woman with a good driving record who had been without insurance for the past 15 days.
It sought quotes for the same imaginary woman but varied her job and her level of education, and the report found that blue-collar drivers with less education were typically charged more. In Phoenix, the differences ranged from 3.4 percent to 12.3 percent, depending on the insurer.
The federation said charging higher rates based on non-driving factors is unfair to lower-income workers who already face enough “hurdles and obstacles.”
“Many lower-income workers are faced with the choice of paying these high and often unaffordable prices or breaking the law by driving without insurance,” said Stephen Brobeck, CFA executive director, who called on state and federal governments to address the issue.
But industry groups defended rating policies, saying they ultimately lead to lower premiums overall.
“Different occupations have proven to be less risky or associate with less risk than other occupations, and that’s why you got various premiums,” said Alex Hageli, director of personal lines policy for the Property Casualty Insurers Association of America.
He said states including Maryland and New Jersey have looked at rating factors such as education and occupation and found their use to be “actuarially justified.”
“The statistic shows that I am a riskier driver than somebody else, then I should pay more than that other person,” said Hageli. He said most consumers would support the use of those factors as well, because it results in premiums that reflect the level of risk.
Hageli said the CFA report makes the price difference “sound like it’s a bad thing,” but “consumers want variety, rather than every company charging you the same rate.” The price difference shows there is competition and “is just the market working,” he said.
American Insurance Association spokesman Willem O. Rijksen agreed that factors such as continuity of coverage, location, credit-based scoring, driver experience, education and occupation, all help insurers more accurately price risk.
“As the CFA’s own data points out, auto insurance remains a very competitive market and consumers are well-advised to shop around to find the coverage that best meets their individual needs,” Rijksen wrote in an email.
But J. Robert Hunter, CFA’s director of insurance, questioned whether people support all rating factors.
“The American public knows that it is unfair for auto insurers to use factors like education and occupation in setting rates,” said Hunter, a former Texas insurance commissioner and a former federal insurance administrator.
“In effect, auto insurers are discriminating on the basis of income and race,” Hunter said in a conference call with Brobeck to release the report. “States should prohibit the use of these demographic factors that bear no logical relation to insurer risk.”
Mary Butterfield, assistant director at the Arizona Department of Insurance, could not say if insurers in the state factor education or occupation into rate-setting.
“I don’t know that companies ask those questions and our laws don’t specifically address that sort of thing usually,” said Butterfield, who declined further comment.
Nicole Farr, a spokeswoman for the Arizona Insurance Council, said the report might be too narrowly focused to draw a conclusion.
“There is a lot of inconclusive information,” said Farr, noting that CFA only chose 10 insurers and “only very few companies that actually asked those questions about education and jobs.”
Of the 10 insurers, the report cited five that “apparently use education and occupation in their rate-making in most states” – GEICO, Progressive, Liberty Mutual, Farmers and American Family.
Four of those firms did not immediately return calls seeking comment Monday. American Family spokeswoman Sandra Spann said the company only asks one question on occupation – “if the vehicle is for personal use, not commercial use, which means it will require a commercial auto policy” – and that it has contacted CFA to see if it will still be included in the report.
Brobeck commended those companies that did not use education or occupation to set rates: State Farm, Allstate, USAA, Nationwide and Travelers. But noting the competition in the marketplace, he called for greater government regulation so firms are not pressured to adopt what he called “discriminatory practices.”
“Since state governments require purchase of auto insurance, state insurance commissioners have an obligation to address this issue,” Brobeck said. “And the relatively new Federal Insurance Office should make the study of this problem a priority.”
Besides Phoenix, cities included in the report were Atlanta, Baltimore, Chicago, Denver, Hartford, Houston, Louisville, Oakland and Seattle.
The Consumer Federation of America visited websites of 10 insurers in 10 cities to get auto insurance quotes for a 30-year-old single woman, renting in a moderate-income area, driving a 2003 Honda Civic with no accidents or moving violations in 10 years of driving. It said she had not had insurance coverage for 15 days. Then it varied her level of education and job. Quotes from Phoenix-area insurers for her annual premiums were:
– Liberty Mutual
High school graduate: $1,592
College graduate: $1,418
High school graduate: $1,223
College graduate: $1,183
Clerical worker: $1,468
Factory worker, high school diploma: $815
Factory worker, college degree: $762
Factory superintendent, high school diploma: $762
Factory superintendent, college degree: $737