Consumer Federation of America alleges unfair insurance practices

January 29, 2013

A recent study from the Consumer Federation of America revealed some odd findings when it comes to auto insurance.

The CFA used two hypothetical drivers and sought to get them insurance from a variety of carriers. Both drivers were 30-year-old women who had the same amount of experience on the road, lived in similar ZIP codes, and sought the minimum amount of coverage.

As for the differences, one woman was single, rented her house, and hadn't had insurance for 45 days. She also had a spotless record on the roads: no accidents and no tickets. The other woman was married, a high earner with a graduate degree, and a home owner. She had been at fault in an accident that caused $800 worth of damage within the past three years.

Guess who was offered higher premiums most of the time? From the report:

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.

The CFA concludes that the fact that safer drivers are being asked to pay more reflects "insurer use of rating factors such as education and occupation that, in a 2012 nationwide survey, over two-thirds of Americans said were unfair."

The study notes that (surprise, surprise) not all insurance carriers followed the pattern. Indeed, in some cases, the driver with less income but fewer accidents actually got a lower quote. "In all twelve cities State Farm charged the good driver less. Moreover, in all twelve cities, the rates quoted by State Farm were either the lowest (6 cities) or the second lowest (6 cities)."

Insurers have responded to the CFA study, saying that insurance rates are already highly competitive. Robert Detlefsen, vice president of public policy at the National Association of Mutual Insurance Companies criticized the CFA's study, saying it lacked a detailed description of the research methodology used and didn’t acknowledge any limitations that could influence the study’s findings.

He continued: "The only evidence it offers for this assertion is a public opinion survey. CFA simply assumes that the only relevant risk factors are those involving accident history. CFA’s entire critique is based on this one false assumption."

[Photo credit: Timothy J Carroll / Flickr]