Low-income regions struggle with high insurance premiums

Dec. 5, 2014
Low-income families face high insurance premiums, even when they have good driving records, says a recent report from the Consumer Federation of America.

Low-income families face high insurance premiums, even when they have good driving records, says a recent report from the Consumer Federation of America (CFA). The organization conducted an analysis of premium quotes in low-income ZIP codes across the U.S. and found that major carriers are charging in excess of $500 annually (in some cases, more than several thousand dollars annually) to provide state-mandated coverage in some of the poorest regions of the country.

According to the report, the five largest auto insurance companies in the U.S. do not make a basic auto insurance policy available to typical safe drivers for less than $500 per year in more than 2,300 urban and suburban ZIP codes, including more than a third of the nation's lowest-income ZIP codes.

The CFA analyzed 81,000 premium quotes for State Farm, Allstate, Farmers, Progressive, Geico and their affiliates. In 24 of the 50 urban regions examined, there was at least one lower-income ZIP code where annual premiums exceeded $500 from every major insurer. In nine of these areas (Miami/Ft. Lauderdale, Detroit, Minneapolis/St. Paul, Tampa/St. Petersburg, Baltimore, Orlando, Jacksonville, Hartford, and New Orleans) prices exceeded $500 in all lower-income ZIP codes.

"Our research raises important questions as to whether state-mandated auto insurance is priced fairly and is affordable for many lower-income Americans," said Tom Feltner, CFA’s Director of Financial Services and the principal author of the report. "Drivers need a car to get to work or school. High insurance premiums act to deny these Americans economic opportunity and also help explain why so many lower income Americans drive without insurance."

In other reports issued over the pas several years, CFA found that premiums quoted to typical moderate-income good drivers for required liability coverage in select cities were usually in excess of $500, and sometimes exceeded $2,000. The reports also found that insurers use rating factors like education and occupation that disadvantage lower-income and moderate-income drivers.

For the present study, CFA reviewed January 2014 data on premiums charged to a good driver (30-year-9ld, unmarried woman with a high school diploma, a clerical job, who is a renter has a "fair" credit score) in all U.S. ZIP codes.

In 484 of the 1,377 lower-income ZIP codes, the driver could not purchase minimum required insurance for less than $500 per year from any of the major insurers. In 140 of those ZIP codes, she could not find a quote less than $750. In 87 percent of those ZIP codes, the average premium charged by the five insurers was above $500; in 26 percent of the ZIP codes, the premium exceeded $1,000; in nine percent of the ZIP codes, the average exceeded $2,000. In 14 per4cent of the ZIP codes, one of the major companies quote basic coverage premium that exceeded $3,000.

The majority of drivers in the lowest-income ZIP codes reviewed earn less than $21,000 per year, which made a $500 policy a challenge to afford.

"In evaluating the implications of these data, it is important to keep in mind that for various reasons, many lower-income drivers have difficulty undertaking rigorous comparison shopping to find the lowest priced insurance,” Feltner said.  "Also, about two-fifths of low-income drivers finance their car purchases so must purchase collision and comprehensive as well as liability insurance, further driving up the cost, often by hundreds of dollars."

CFA has called on federal and state regulators to investigate the issue and "help ensure that mandated auto insurance can be afforded by lower-income Americans with good driving records."

In response to the report, Robert Passmore, senor director of personal lines policy at the Property Casualty Insurers Association of America (PCI) issued a statement pointing out that insurance premiums reflect the cost of providing the coverage based on driver usage and history, roadway congestion and the number of accidents and related lawsuits, healthcare and auto repair expenses in the area where the car is garaged.

"We understand the desire that everyone has to pay less for goods and services," Passmore said. "However, there are a number of actions that would be targeted at bringing down the cost drivers for insurance, such as lawsuit reform, avoiding mandatory insurance level increases, low cost auto programs and more highway safety and antifraud measures. These actions would benefit all consumers."

The CFA would like to see a federal program that mirrors a California program that provides minimal liability coverage that costs between $226 to $338 per year for drivers that earn less than $55,000 annually, have cars worth less than $20,000, and have driven at least three years with a clean record.

You can download the CFA at ABRN.com/CFAReport.

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