A waitress with a high school diploma and clean record could pay more than a doctor with a DUI
By: Rachel DePompa, InvestigateTV Consumer Investigative Reporter
(InvestigateTV) – No accidents. No tickets. Higher insurance rates. An insurance insider says that’s the situation for some drivers and calls it rate discrimination.
Car insurance companies use a variety of factors to calculate the rate they charge drivers – and many of them have nothing to do with driving records.
“If you simply don’t have a four-year college degree and a high-paying job, you’re just not eligible for the preferred rate,” said Eric Poe. He’s been fighting for years to level the playing field, lobbying lawmakers at the state and federal levels to change how insurance companies set rates.
When insurance companies set rates for individuals, they use information that applicants offer – and they may use estimations or proxies based on that information to fill in other details to estimate risks.
“It’s a secret that nobody in my industry wants to divulge to the common person because they understand none of these proxies ever work in favor of people that have less income,” Poe said.
He said the estimated, or proxied, information can make a big difference for drivers and what they pay.
When it comes to income, he said insurance companies like wealthier customers because they are more likely to bring in a profit. For example, they may own more or higher value cars – needing more insurance coverage.
“Don’t think that the reason your rate is higher is because you’re a bad driver or this insurance company simply charges more than other insurance companies,” Poe said. “You can be blatantly discriminated against because the proxy likelihood of you not making a lot of money costs you 40% higher rates than the other driver who goes on the same website.”
Poe is also the chief operating officer of Cure Auto Insurance, a non-profit competitor to the big insurance companies. Cure doesn’t use education or occupation to set rates.
Despite being in the industry, Poe said these formulas used by some of his competitors only benefits him in one way: “I’m able to compete for risks and drivers on the road without having to go after people that don’t have high paying jobs and don’t have good credit scores.”
Testing the rates
InvestigateTV ran different driver scenarios through insurance quote websites to see how changing certain factors would change the prices.
For example, one simulated driver was a 43-year-old woman named Lisa Williams. In each test, InvestigateTV used the same vehicle make and model and same address. The variables were driving history, occupation and education level.
The first Lisa Williams had a clean driving history, worked as a waitress and had a high school diploma. Geico quoted her around $150 per month.
The second Lisa Williams worked as a doctor and had a college degree, but she had a DUI conviction. The same insurance company quoted her around $130 per month.
InvestigateTV ran the test multiple times on both Geico and Progressive’s websites. Each time, the rates were always lower for the doctor with a DUI.
“Does it take a rocket scientist to understand who’s being discriminated against? I don’t think it does,” Poe said.
Insurance industry spokesman explains risk calculations
When asked both Geico and Progressive about this practice, both companies referred InvestigateTV to the American Property Casualty Insurance Association. APCIA is an industry trade group for nearly a thousand insurance companies.
When asked about why job titles and education levels matter in rate calculations, APCIA spokesperson and vice president Dave Snyder told InvestigateTV there are different practices among companies.
“There’s no one way by which the companies do business and that’s something that’s often lost,” he said.
Those different companies may use different factors when they calculate a potential customer’s risk – which translates to their quoted rate.
“All these factors are used for one simple reason: That they help improve risk assessment so that the companies can best match price to risk. An insurance company can’t use a weighing factor unless we can prove to that state’s regulators that that relates to risk,” Snyder said.
Not all insurance companies ask for applicants’ occupation and education level. InvestigateTV found that All State and State Farm do not.
States, Congress consider law changes
Some states are making changes. New York lawmakers banned the use of education and occupation as factors in setting auto insurance rates, calling the practice “unfairly discriminatory” and “penalizing drivers without college degrees or who work in low-wage jobs.”
California is currently considering similar but stiffer rules.
Congresswoman Bonnie Watson Coleman (D-New Jersey) has taken this issue to the federal level, introducing the Paid Act, which would prohibit the use of a driver’s education and occupation to calculate your rate.
“[A driving record] is what should matter,” Watson Coleman said. “Working families who need to get from one job to another or need to pick their kids up from school in between their jobs or need to go get their groceries, they’re the ones who are suffering. They’re the ones paying a higher insurance rate than the individuals that might have a blemished record.” Synder argued a federal ban would only increase insurance rates for everyone. It remains to be seen if that’s happened in a state like New York, which already has a ban in place. But he said consumers have the most power here.
“It is highly competitive. If a consumer feels for one reason or another … that they’re not getting the kind of price that they feel is good for them, they have the ability to shop around,” Snyder said.
As of mid-February 2020, the Paid Act was in the financial services committee awaiting action.
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