The Washington PostDemocracy Dies in Darkness

Auto insurance rates have skyrocketed — and in ways that are wildly unfair

A man crashed this car into a tree in Auburn, N.Y., while playing Pokemon Go on his smartphone late in the evening of July 12, 2016. (Auburn Police Dept. via AP)

Auto insurance rates have increased at more than twice the rate of inflation recently, with premiums hitting a national average of $1,427, an online marketplace has found.

Catastrophic weather drove some of the rate increases last year, the Zebra says. What the report only hints at, however, is how unfair these rates are to some — and how ineffectual state regulators have become at regulating them.

Consumer advocates say insurers have become adept at using Big Data to set rates for drivers using formulas that are complex and sometimes hidden from view. In the crazy, mixed-up world of car insurance, credit ratings and college diplomas can have a bigger bearing on car insurance premiums than someone’s driving record. The people most often hurt are low-income drivers who can least afford to buy state-mandated insurance, they say.

Is distracted driving causing more traffic deaths?

“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.

The Zebra, a website that allows people to shop for auto insurance, analyzed more than 50 million quotes to compile its annual report on the state of auto insurance nationwide. The report says auto insurance rates have climbed more than 20 percent since 2011. Among its findings are these:

  • The city with the most expensive car insurance rates is Detroit ($5,414); the least expensive car insurance is in Winston-Salem, N.C. ($774). D.C. had an average rate of $1,464 compared with $1,240 in Maryland. Virginia’s was $901, second-lowest in the nation.
  • A person with a poor credit score — between 300 and 579 — will pay substantially more for car insurance compared with someone whose score is above 800. Substantial, as in more than $1,400 more.
  • Insurance companies have not appreciably lowered rates for people who participate in programs that provide virtually real-time data on their driving habits. The report found that people whose rates were set after factoring in telematics programs — which monitor drivers through their smartphones or devices plugged into their vehicles — had average premiums of about $1,415 compared with $1,427 for people who didn’t.
  • Refusing to submit to a DUI or chemical test will jack up your insurance by nearly $1,100.
  • A teacher will pay more for car insurance than a firefighter — or a lawyer, who pays less than both. People who are unemployed pay the most.
  • A PhD will pay about $44 less on car insurance than someone without a high school diploma.
  • Insurance rates drop about 6 percent when a single person gets married, for a savings of about $80 a year.
  • Homeowners pay less on car insurance than renters, especially when bundling auto coverage with home insurance. A homeowner can save as much as 9.5 percent this way, compared with 5.4 percent for a renter.
  • The difference between rates for men and women is “insignificant,” or less than 1 percent, the report says. Men paid a bit more in 2016; women are paying more now.
  • Neither safety features nor anti-theft features did much to lower rates. It may be because those technologies — devices that warn if you drift from your lane, or parking assists — are expensive, thereby raising the cost of repairs or replacement.
  • A ticket for texting and driving could cause your premium to rise about 16 percent on average — a lot more than the percentage impact of less than 1 percent in 2011.

Adam Lyons, the Zebra’s founder and executive chairman, attributed the higher rates to extreme weather last year, such as  Hurricane Harvey. Rates have also increased partly because of the cyclical nature of the insurance business and partly because more people are on the road, he said. Lyons also said that insurers, who partner on the website, have to navigate state-by-state regulation that makes innovation difficult.

In testimony last month before the D.C.’s Department of Insurance, Securities and Banking,  an official with the Insurance Information Institute said car insurance rates have risen 15 percent in just the past two years nationwide. Yet insurance company profits declined from more than 10 percent to 1.6 percent in that time.

James Lynch, chief actuary and vice president of research and education at the Insurance Information Institute, said part of the reason is that the cost of crashes has been rising — as much as 46 percent just because of personal injury claims. Among the factors he listed was distracted driving: people are paying more attention to smartphones and fancy dashboard gadgets than to the road.

“The situation on our nation’s roads is an everyday catastrophe reaching epidemic proportions,” Lynch said in written testimony.

And there is a reason some insurers use credit scores, the Zebra says. The Federal Trade Commission has done studies showing that drivers with low credit scores are more likely to file insurance claims than drivers with higher scores. The report also says those claims tend to be costlier than claims filed by people with better credit scores.

New no-fault insurance claim: The CIA crashed my car

But count Robert Hunter a skeptic on that theory. Hunter, who is director of insurance for the Consumer Federation of America, said the reason people with lower credit scores might file more claims is that wealthier drivers sometimes refrain from filing claims because they have the means to cover the cost of some collisions out of pocket and would prefer to do so rather than risk a rate hike or policy cancellation.

If anything, Hunter said, the industry could use more, not less regulation, particularly when it comes to using factors that have little to do with one’s driving record.

“If you have more education, you pay less,” Hunter said. “If you have a higher-paying job, you pay less. If you have a better credit score, you pay less. If you own a home, you pay less. If you live in high-value areas, you pay less.”

In 2015, Consumer Reports issued a special report detailing a number of factors that insurance companies use to set rates that have nothing to do with driving risk. These included “price optimization” that relied on personal data and statistical models to figure out how willing a person is to shop around for a deal or tolerate gradual price increases, the publication says.

Hunter believes the insurers’ decision to use such factors has more to do with profits and business preferences. Using credit ratings and college degrees to set insurance rates has the effect, intended or not, of driving low-income motorists away, he said.

“We don’t think they want to serve lower-income people,” Hunter said.

–This post has been updated to correct premiums in the least and most expensive cities.

Read more of Tripping:

Case dismissed against person who texted driver in fatal Pennsylvania crash

Monster trucks for Virginia’s roads? Some lawmakers want to study them; opponents see them as menace

United grounds peacock that someone tried to take on board as a support animal