A recent report by the New York Public Interest Research Group (NYPIRG) took a close look at how companies weigh some of the non-driving related factors when they provide price quotes to consumers. What NYPIRG found was startling. All else being equal, for three of the top five insurers in New York, a low wage worker with a high school degree could pay anywhere from 19%-41% more than a college educated professional for the exact same coverage.
That’s correct: the auto insurance rates charged to a high school educated bank teller were higher than those for a banking executive with a college degree – even when they had the exact same driving records.
Is that fair?
To most people, these factors tend to say more about who you are than how you drive, which raises serious concerns about the unfair impacts of their use on some groups of drivers. For example, according to recent Census data, African-Americans and Latinos are significantly less likely than Whites to obtain a college degree. U.S. Department of Labor data shows similar trends in the workplace, where African-Americans and Latinos are less likely to have professional or managerial jobs.
While intentional discrimination by insurers based on race and ethnicity is outlawed, more subtle forms of bias may persist. Regardless of motivation, the use of non-driving factors that correlate so strongly with race and ethnicity raises troubling questions about a harmful disparate impact on our most vulnerable communities, just as “redlining” out certain neighborhoods from banking or insurance did decades ago. This practice may be compounded since not only can insurers get more money out of blue-collar workers – not matter what race or ethnicity – but they can also lure upper-income drivers—who are more likely to insure multiple cars and bundle their auto coverage with homeowners and life insurance—with ostensible discounts.
Discounts that are, in part, generated with higher premiums on those with lower incomes.
Research shows that owning a car greatly increases economic opportunities, such as access to jobs for low- and moderate-income households. Yet in New York, where car insurance prices are among the most expensive in the nation, even the most bare-bones policy can nab a significant portion of a low-income family's annual income. Since drivers must purchase auto insurance if they want to drive, it's only right that regulators require insurance companies to set prices fairly, affordably and transparently.
The good news is that it appears auto insurers don’t need to consider these factors in order to remain profitable and make rates more affordable for consumers. The NYPIRG analysis showed that State Farm, the nation's largest automobile insurer and the third largest writer of car insurance premiums in New York, does not consider education level or occupation when setting rates. And in California, where insurers are required to emphasize driving-related factors like driving record, annual mileage, and years of driving experience above all other factors, the insurance market is not only profitable, but low-income drivers with good driving records qualify for a low-cost insurance program, and all other drivers have seen average expenditures go down over the last 25 years.
Insurance regulators in New York and across the nation must review their practices to ensure that rates are based on fair indicators – like a driver’s actual record – and that using education and employment as factors should be impermissible.
When lawmakers arrive in Albany to start up the second half of the legislative session, they should ensure that irrelevant factors are not used in auto insurance rates.
Blair Horner is the Legislative Director of the New York Public Interest Research Group.
The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.