Best’s News & Research Service - August 05, 2015 02:01 PM (EDT)
Consumer Group: Some Auto Insurers Base Rates on Marital Status
WASHINGTON //BestWire// - Automobile insurers are questioning a new Consumer Federation of America report that resulted in the group asking state insurance departments to consider possible unfairness in auto insurance pricing based on marital status.
The CFA study was conducted in 10 cities — Baltimore, Tampa, Florida; Louisville; Chicago, Minneapolis; Denver; Houston; Phoenix; Oakland, California; and Portland, Oregon. It found that four of the auto insurers examined — Geico, Farmers, Progressive and Liberty Mutual — allegedly increased rates on state-mandated liability coverage for widows by an average of 20%. Nationwide allegedly occasionally increased rates on widows, while State Farm did not change price quotes for any marital category, the CFA said.
"The 'widow penalty' and other pricing related to marital status provides still another reason for state insurance departments to examine insurer pricing more carefully," said J. Robert Hunter, CFA's Director of Insurance and a former Texas Insurance Commissioner. "Auto insurers are increasingly using non-driving factors in this pricing, and it appears that much of this pricing is unrelated to insurer risk," he added.
Hiking rates on widows "seems both unfair and inhumane," said Stephen Brobeck, CFA's executive director. "Why don't insurers instead emphasize driving-related factors such as accidents, traffic violations, and miles driven in their pricing?"
The Property Casualty Insurers Association of America disputed the report. "Contrary to the impression that may have been created by CFA, insurance ratings are subject to rigorous actuarial standards and state regulation which ensure that all rating factors accurately reflect the risk of loss," said David Snyder, PCI vice president of policy development and research. "If there are cases where any factor creates an unusual unintended consequence, consumers can reach out to their companies and insurance regulators and bring that to their attention." Marital status usually functions as a discount when setting auto insurance prices, Snyder said.
The CFA said its research used quotes from the websites of the auto insurers for the minimum liability insurance required by states. All car, driver, and insurance characteristics were held constant except for marital status for each price quote in the cities surveyed.
The CFA report found most major companies almost always charged higher rates for single, separated and divorced drivers than for married drivers. Also, the average and range of percentage increases in annual premiums from married to single/separated/divorced drivers at age 30 still existed when those drivers turned 50.
Nationwide is among the companies that allegedly almost always charged married persons a lower premium compared to single, separated and divorced drivers who were charged the same — and an often higher price, according to the CFA report. But Nationwide said in a statement CFA overgeneralized its findings. "Nationwide doesn't have different prices based solely on whether a driver is widowed or married," said Eric Hardgrove, director, PCO and direct public relations at Nationwide in a statement. "There are a number of factors that impact a customer's price."
Insurer use of price optimization — which has been prohibited recently by several insurance departments — provides more evidence that insurers are using factors related solely to profitability, Hunter said in a statement (Best's News Service, July 21, 2015). "The result is that not only does insurance pricing become increasing exploitative, but also that lower income and minority drivers are charged the highest prices simply because of their socio-economic characteristics," he said.
Progressive Insurance declined to comment. Attempts to gain comment from Farmers, Geico, Liberty Mutual and State Farm were not immediately successful.
(By Thomas Harman, Washington Bureau manager, BestWeek: Tom.Harman@ambest.com)