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Monday, January 28, 2013

Car Insurance: RIpping Off the Poor

So the clever folks at Consumer Federation of America (CFA) via this article at Bloomberg issued this press release.

According to the press release (underline mine): "...  In two-thirds of the 60 cases studied, large auto insurers quoted higher premiums to safe drivers than to those responsible for an accident. And in more than three-fifths of the cases with these higher premiums, the premium quoted the safe driver exceeded the premium quoted the unsafe driver by at least 25 percent."

Basically it shows that all the fancy Gecko, Flo, "good hands" and burning hair ball commercials come from companies that are ripping you off in terms of auto insurance (see table below).

In some cases the "poor" person paying 100% more than the rich one.


From the press release:  “Again, our research on auto insurance prices reveals a marketplace that is highly uncompetitive,” said CFA’s Brobeck. “Any economist will tell you that when prices range 100%, even 200%, for similar products, that marketplace is not competitive. But it appears that this lack of competitive pricing mainly reflects the frequent lack of interest of major auto insurers in selling basic products to low- and moderate-income drivers,” he added.

Lets look at the "test" person for which, in a number of markets listed below, auto insurance quotes were requested:

Shared Characteristics
Female, 30 years old, driven 10 years
Reside in city in ZIP code with median income of about $50,000 Drive 2002 Honda Civic they own 7500 miles/year
Minimum liability auto insurance coverage required by state law 

Varying Characteristics

Receptionist: driver is a single receptionist with a high school education who rents, has been without insurance
coverage 45 days, and has never had an accident or moving violation 

Executive: driver is a married executive with a Masters degree who owns a home, has had continuous insurance coverage, and has had an at-fault accident with $800 of damage within the past 3 years 
Here are the quoted rates (full table at link above):

Only State Farm appears to have gotten it right - the executive with an accident paid more than the receptionist because she has had an accident recently.

Beyond that there should be no difference for the same vehicle and coverage.

According to Bloomberg Progessive, when asked via email about these results, said:  “... [they] price each driver’s policy as accurately as possible” using multiple criteria, “which sometimes include non-driving factors that have proven to be predictive of a person’s likelihood of being involved in a crash ...”

So if you are poor you are going to be in a wreck - unilaterally.

State Farm - which insures about one quarter of all drivers somehow - seems to get buy without this discrimination.

Don't look for to much interest in this and remember, these big insurance companies want you to feel good about what they are doing for you, just like the government...


  1. Consumers should always research about the insurance they’re planning to purchase and not solely rely on what the agent is telling you, as most of the time it's just a sales talk for you to buy their product. Some companies really do rip people off and give the least amount of coverage that you can get. Therefore, we should always conscious to the products/services that we are availing of.

    Fe Penley

  2. Well, credit score is being used to determine's been proven to be one of the most accurate predictor of risk. I suggest that if car insurance companies are quoting you high for being poor, u get quotes from an auto insurance company that does not look at credit score (like