A new report backed by the Consumer Federation of America accuses auto insurance companies of discriminating against low- and middle-income customers. The report, titled “Lower-Income Households and the Auto Insurance Marketplace: Challenges and Opportunities,” alleges that insurance agencies hit the less fortunate with higher-priced policies making it difficult for them to afford coverage.
Factors like where a customer lives are the focal point of how a customer is assigned a rate according to the report. Auto insurance companies take into account ones occupation, education, and credit rating as well when they issue a policy. The report concludes that insurance agencies don’t really do their homework when assigning coverage because sometimes the presented risk doesn’t translate to an actual issue.
“In large part because of high costs and disparate impacts, a significant minority—perhaps one-quarter to one-third—of (these households) do not carry auto insurance and are driving illegally,” the study says.
Many cities also lack sufficient public transportation which further affects those who can’t afford auto insurance. With no public transportation people can’t get to their jobs and in turn can’t buy a vehicle. The report also uncovered a discrepancy of insurance agencies located in poorer neighborhoods when compared to other more affluent neighborhoods. Washington D.C. only has three of 80 insurance offices located in poor neighborhoods while 45 (more than half) are located in areas where people have a higher income.
The report goes into detail using an example of a man from Compton, Calif., one of the poorest areas in the nation.
“According to data collected by the California Department of Insurance, a single male from Compton, Calif.—who is under 30 years of age, has been licensed 6-8 years, drives 7,600-10,000 miles per year, and has had one traffic ticket and one at-fault accident—would be charged between $1,628 and $2,353 for basic liability coverage and between $5,670 and $7,500 for standard coverage including collision and comprehensive…”
Automotive.com’s take: While this study shows many discriminatory practices used by insurance agencies backed up with multiple examples, we expect a rebuttal from those who represent these agencies on a national level sometime in the near future. Besides, it’s important to remember that this is a report from an advocacy group trying to affect some sort of change. While we agree that artificial barriers to getting car insurance should be removed, it also makes sense that rates for theft, for example, might be higher in high-crime areas.
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Source: Business Insider