Want Cheaper Car Insurance? Pay Your Electric Bill on Time

Aaron Cole
by Aaron Cole

Automotive insurers use more than just your driving history to set your rates, the New York Times is reporting.

Factors such as your credit score, address and marital status can increasingly affect premiums more than driving history, the story explains.

A survey of the nation’s largest insurers — Geico, State Farm, Nationwide, Liberty Mutual and Farmers — found that a hypothetical woman in her 30s paid more if she was widowed, instead of married, at four of the five firms. The premium increases ranged from 3 percent to 29 percent. Only State Farm charged the woman the same, regardless of marital status.

Many insurers use credit reporting bureaus to adjust rates for drivers looking for coverage.

A 2003 study by the University of Texas found that drivers with lower credit scores filed more claims and were a greater risk to car insurance companies, although several states including California, Massachusetts, Hawaii and Colorado outlaw the practice of adjusting rates or denying coverage by using credit scores. Some have said that credit scores are unreliable at predicting driving habits and unlike cable companies, if you don’t pay your premium, insurance companies are pretty quick to suspend your coverage.

But the study found that married drivers get the benefit of the doubt more often. Despite having more single adults in the U.S. now, married drivers get lower rates because they’re responsible adults and never make mistakes, or something. Here’s how they explain how it works ( via NYTimes):

“David Snyder, a spokesman for the Property Casualty Insurers Association of America, said that rather than showing a penalty applied to widows or other unmarried people, the analysis reflected that many insurers gave a discounted premium to married couples, because they tended to be more responsible and had a lower rate of filing claims. So if drivers are not married, they will not receive a quote with that discount.”

See? Single drivers aren’t penalized. They’re just not rewarded. Those are totally different.

Nonetheless, the story’s most salient point is that — at least in the United States — the process of adjusting and setting rates isn’t totally transparent, despite the government mandate to make it so.

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  • Power6 Power6 on Aug 11, 2015

    Consumer reports had a great story on this, this month. It did a better job of describing why this is news and also why the practices could be devious. The bottom line is that they found the pricing of insurance is not risk based and varied wildly, and that those cute commercials create the illusion of price competition where there isnt really any. The insurance companies are using big data analysis to figure out price sensitivity , i.e can they raise your rates a little and you dont notice or dont care...etc. Too bad that is illegal in MA as well as credit score rating. Edit...expanding on the credit score since most dont seem to know how it works...damn over simplified news stories... They are not using anyones credit score. They are calcualting their own score based on the data. This is already common for say auto loans the generic classic FICO score is hardly used any more in favor of proprietary formulas. What this means, is that even if your credit score is great you dont know what your insurance credit score is or how it was calculated. The ins companies do claim it indicates your propensity to file a claim, but it could also be your ability and propensity to shop around...

    • Corey Lewis Corey Lewis on Aug 11, 2015

      "The bottom line is that they found the pricing of insurance is not risk based and varied wildly" Are you sure you read this correctly? It's risk and behavior based. Increasingly insurance companies want to use behavioral analytics (that is, determining risk based upon credit score, fitness trackers, purchases via credit card, etc.) but they can't use that until it's legislated and approved. I've seen underwriting, and it's income and health statistic based, as well as the answers you give on the questionnaire. These determine risk, which is the basis. There are actuarial and underwriting practices determining pricing, as well as a layer on top (risk charge) which gives the insurer some profit.

  • WildcatMatt WildcatMatt on Aug 21, 2015

    As others have mentioned, this is not news. Allow me to put on my car insurance hat: The thing that isn't widely understood is that most insurance companies don't use your actual credit score, because your credit score is a measure of creditworthiness. The ability to walk into a bank and walk out with a million dollar mortgage has nothing to do with what insurance companies are looking at. What most insurance companies DO look at is a subset of the data, usually something like this: * The length of history available * Number of balances reported as past due * Length of time since a credit check for a loan or credit card * Number of accounts opened in the last 12 months * Number of balances sent to collections * Ratio of available credit to balance on credit cards * Ratio of accounts which are past due to never past due * Number of credit checks (multiple inquiries within 30 days are counted as one inquiry) Effectively, what insurance companies are looking for is that a person pays their bills on time and effectively manages whatever credit they have. Each carrier develops their own score based on how they want to fit credit-based underwriting into the mix with their other factors, which is in turn based on who their target customer is. Actuarial consulting firm Tillinghast validated that in 89% of cases they studied, the statistical significance between likelihood of loss and measurement of these factors was above 99%. The FTC has acknowledged the mathematical underpinnings are sound. The problem with anything that's predictive in nature is there are always outliers and people can fall through the cracks. People who go card hopping (sign up for credit cards and/or store cards (ie Target, Lowe's, etc.) for points or promotional discounts then cut up the card only to repeat the process a month later) will get hammered. So will people who have one card they pay off each month and pay everything else in cash, because they don't generate enough credit history to develop a score. At least if you had an ex run up your credit cards then leave you, you can usually talk to your insurance company and they will factor them out. (In case you're wondering, yes, I have indeed spent about 10 years explaining this to customers on the telephone.)

  • Alan The Prado shouldn't have the Landcruiser name attached. It isn't a Landcruiser as much as a Tacoma or 4 Runner or a FJ Cruiser. Toyota have used the Landcruiser name as a marketing exercise for years. In Australia the RAV4 even had Landcruiser attached years ago! The Toyota Landcruiser is the Landcruiser, not a tarted up Tacoma wagon.Here a GX Prado cost about $61k before on roads, this is about $41k USD. This is a 2.8 diesel 4x4 with all the off road tricky stuff, plus AC, power windows, etc. I'm wondering if Toyota will perform the Nissan Armada treatment on it and debase the Prado. The Patrol here is actually as capable and possibly more capable than the Landcruiser off road (according to some reviews). The Armada was 'muricanised and the off road ability was reduced a lot. Who ever heard of a 2 wheel drive Patrol.Does the US need the Prado? Why not. Another option to choose from built by Toyota that is overpriced and uses old tech.My sister had a Prado Grande, I didn't think much of it. It was narrow inside and not that comfortable. Her Grand Cherokee was more comfortable and now her Toureg is even more comfortable, but you can still feel the road in the seat of your pants and ears.
  • Jeffrey No tis vehicle doen't need to come to America. The market if flooded in this segment what we need are fun affordable vehicles.
  • Nrd515 I don't really see the point of annual inspections, especially when the car is under 3 years (warranty) old. Inspections should be safety related, ONLY, none of the nonsensical CA ARB rules that end up being something like, "Your air intake doesn't have an ARB sticker on it, so you have to remove it and buy one just like it that does have the ARB sticker on it!". If the car or whatever isn't puking smoke out of it, and it doesn't make your eyes water, like an old Chevy Bel-Air I was behind on Wed did, it's fine. I was stuck in traffic behind that old car, and wow, the gasoline smell was super potent. It was in nice shape, but man, it was choking me. I was amused by the 80 something old guy driving it, he even had a hat with a feather in it, THE sign of someone you don't want to be driving anywhere near you.
  • Lou_BC "15mpg EPA" The 2023 ZR2 Colorado is supposed to be 16 mpg
  • ToolGuy "The more aerodynamic, organic shape of the Mark VIII meant ride height was slightly lower than before at 53.6 inches, over 54.2” for the Mark VII."• I am not sure that ride height means what you think it means.Elaboration: There is some possible disagreement about what "ride height" refers to. Some say ground clearance, some say H point (without calling it that), some say something else. But none of those people would use a number of over 4 feet for a stock Mark anything.Then you go on to use it correctly ("A notable advancement in the Mark VIII’s suspension was programming to lower the ride height slightly at high speeds, which assisted fuel economy via improved aerodynamics.") so what do I know. Plus, I ended a sentence with a preposition. 🙂