A new report from the Consumer Federation of America examines the impact of auto insurers’ use of consumer credit information on good drivers with only fair or poor credit scores. Across the country, consumers with good driving records but with poor credit annually pay hundreds or even thousands of dollars more for the basic auto insurance coverage mandated by state laws. Because credit history correlates to race and income, raising premiums on drivers with lower credit disproportionately harms low-income consumers and people of color.
The study found that nationwide, American consumers with clean driving records and excellent credit pay an average annual premium of $470 for state-mandated auto insurance. But consumers with the same driving record but with only fair credit ratings pay an average premium of $701. And good drivers with poor credit pay an average premium of $1,012 — a $542 or 115 percent increase compared to drivers with excellent credit.
The overwhelming majority of auto insurers practice this discrimination. Only California, Hawaii, and Massachusetts prohibit the use of credit information in auto insurance pricing. Evidence also shows that insurers, on average, consider credit information a more important rating factor than a consumer’s driving record. In most states, consumers with perfect driving records and poor credit pay more for auto insurance than drivers with a conviction of driving under the influence of alcohol.
“Your auto insurance premium should be based on your driving record, not your credit score,” said co-author Michael DeLong. “You shouldn’t have to pay more in premiums because of a factor unrelated to your driving, and as long as companies are allowed to use credit this way, millions of safe drivers in America are being overcharged for their auto insurance.”
“On average, a consumer with poor credit has to pay twice as much for auto insurance as a driver with excellent credit, even if everything else, including their driving safety history, are the same,” added Douglas Heller, director of insurance for the Consumer Federation of America and a co-author of the study. “Not only is this unfair to safe drivers, because of longstanding and institutional biases, the use of credit history for insurance pricing leads to disproportionately higher premiums for lower-income drivers and people of color.”
The full report, The One Hundred Percent Penalty: How Auto Insurers’ Use of Credit Information Increases Premiums for Safe Drivers and Perpetuates Racial Inequality, may be downloaded here.