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Auto insurers unfairly set rates based on drivers’ education and occupations, consumer group says

Consumer Reports says the practice particularly hurts Blacks and Latinos

Consumer Reports has urged insurance companies to assess risk only on the basis of criteria directly related to driving. (Katherine Frey/The Post)
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A new report by a consumer protection group says auto insurance companies unfairly charge drivers by taking into account nondriving factors such as education level and occupation when setting rates.

The practice can mean that a driver with high school diploma and a low-paying job can pay more for auto insurance than someone with a college degree and an impressive job title, even if they otherwise have identical profiles and driving records.

Consumer Reports said this week that the use of nondriving factors to assess driver risk has a disproportionately negative impact on Black and Latino motorists.

In recent years the organization, along with the National Consumer Law Center and other consumer watchdogs, has called for an end to the use of criteria such as a driver’s gender, Zip code or credit rating when assessing risk for auto insurance policies. Advocates are urging insurers to focus on data directly related to driving, saying such a move also would strengthen the incentive for all motorists to drive more safely. Several states also have enacted legislation prohibiting insurers from using nondriving data in setting insurance rates.

“Drivers understand they’ll pay more for auto insurance if they’ve been in an accident or racked up a pile of speeding tickets,” Kaveh Waddell, deputy editor for Consumer Reports’ Digital Lab, said in a statement. “But most people have no idea that they could be hit with a higher premium for having a service job or because they never went to college or left before graduating.”

A previous investigation by Consumer Reports found that poor credit scores could increase a driver’s annual premium by $500 to more than $2,000 in comparison with drivers with identical driving records but excellent credit scores. The organization also said that in some cases, people with low credit scores pay significantly more for car insurance than drivers convicted of drunken driving who have excellent credit.

Insurance rates have gone up, and sometimes in ways that don't seem to make sense

But insurance industry officials argue that several nondriving factors that outwardly appear to have no bearing on risk have been built on colorblind data that effectively predict the likelihood of crashes.

In testimony before a congressional panel in May 2019, a representative of the Insurance Information Institute said the industry does not develop premium rates on the basis of discriminatory factors or proxies for such categories. He said a driver’s Zip code is a useful variable because location and congestion have some bearing on the risk of a crash because the more cars there are on the road in any one place, the greater the likelihood that collisions will occur. He also said gender has been a reliable variable that reflected the relative amount of time men and women spent driving — and also a variable that changed as driving habits changed.

In its current investigation, Consumer Reports obtained hundreds of online price quotes from seven auto insurance companies. Investigators found that Geico offered price quotes of $115 more a year for drivers whose profiles differed only in their educational attainment, while Liberty Mutual offered policies that cost $62 more for those who were less educated.

The same phenomenon was found when quotes were obtained using driver profiles that were identical except for job title. In one instance, a hypothetical driver who worked as a cashier and had obtained only a high school diploma was given a quote of $455 more a year than one who differed only in having an executive title and an advanced degree.

Liberty Mutual acknowledged that dozens of factors are taken into account to assess a customer’s risk, all of which must be approved in advance by state regulators, and that it conducted that analysis fairly.

“We are committed to offering drivers fair and competitively priced car insurance coverage options backed by benefits, discounts and superior customer service,” the company said in a statement. Geico did not immediately respond to a request for comment.