Data collected for a new study indicates that some auto insurers charge higher rates to people who don’t have college degrees. In some cases, this means less educated customers get overcharged to the tune of an extra $300 per year.
The price of a college education continues to climb, but not having a degree can cost you when shopping for car insurance, according to the results of a new investigation by the Consumer Federation of America (CFA). It’s a situation that puts poor people and minorities on the ropes, the CFA claims.
The CFA used mystery shoppers to gather rates for car insurance in 10 cities, using otherwise identical specifications except for education attained and jobs held. In many instances, companies quoted higher rates for “customers” who only had a high school diploma or a low-level factory job.
“Five of the ten largest auto insurers – GEICO, Progressive, Liberty Mutual, Farmers, and American Family — apparently use education and occupation in their rate-making in most states,” the CFA says in its report.
For example, GEICO quoted a factory worker in Hartford, Conn., a price of nearly $300 more in annual premiums than her supervisor. In Seattle, GEICO offered coverage costing $870 to a factory worker with a high school degree, versus a quote of $599 for a factory worker with a college degree.
The good news, according to the CFA, is that “State Farm, Allstate, USAA, Nationwide, and Travelers apparently do not use education or occupation in their rate-making, at least in the ten states studied.”
Bob Hartwig, president and economist of industry group the Insurance Information Institute, argues that it’s “completely legal” for companies to use education and occupation when figuring out a customer’s premium.
However, Stephen Brobeck, executive director of the CFA, says, “The use of education and income in auto insurance pricing does not pass the smell test.”
The CFA says there’s a bigger issue here. A 2007 investigation by the Florida Insurance Commission found “a demonstrable correlation between occupation, education and income-level and ethnicity, which was not disputed by the insurance industry.”
Insurance companies aren’t allowed to discriminate based on race, and the CFA claims (as it did in an earlier study) that income — which everyone knows is tied to one’s education level — really just serves as a proxy for race.
“[Education level] is a surrogate for income and race,” says the CFA’s insurance director, J. Robert Hunter. Although state insurance commissioners are supposed to weigh in on what criteria insurance companies may use in their underwriting, he says most get their information from the companies they’re regulating and don’t really dig further or question the insurers’ findings. (The Florida case was unusual.)
“These factors are demonstrated independently to be correlated with loss,” Hartwig counters. “It’s the CFA that is inappropriately and improperly preoccupied with the issue of race.”
But take a look at some numbers. According to Census data, the median household income in 2009 was $49,777. While the average income was $51,861 for white households, though, it was just $32,584 for black households and $38,039 for Latino households.
Even when education is equivalent, income often isn’t. “For African Americans and Latinos, there are large gaps between earnings when compared to Whites, especially at the lowest levels of educational attainment,” researchers at Georgetown University’s Center on Education and the Workforce found. Even among those with bachelor’s degrees, blacks earn 20% less and Latinos earn 21% less than whites.
“All other factors being equal, less-educated drivers in lower-paid jobs should not be charged higher premiums than are more-educated, higher-paid drivers,” the CFA’s Brobeck says. “The poor should not be asked to pay more just because they are poor.”