By on August 10, 2015

 

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.

Get the latest TTAC e-Newsletter!

33 Comments on “Want Cheaper Car Insurance? Pay Your Electric Bill on Time...”


  • avatar
    SCE to AUX

    All insurance is becoming more granular in its calculation; health care is the same way.

    Certain demographic features lead to statistically higher risks, but somehow that becomes discriminatory because of our politically-correct society.

    Fat people, drinkers, smokers, and construction workers are more likely to have a health-related claim or workplace injury. City dwellers, young people, and sports car drivers are more likely to have an accident.

    Don’t like it? Shop elsewhere, or change your behavior. Nobody likes it when they’re not the ideal profile, but that’s life.

    By the way, in the State Farm example, it doesn’t say they were cheaper than the others; it merely says they don’t have an internal price differential.

    PS: My employer is going to surcharge me $500 next year for my health insurance if my BMI doesn’t go down a bit. At 240 lbs and 6’6″ nobody thinks I’m wide, except my company. Looks like I’m stuck, because I probably won’t lose 25 lbs very soon. At least I don’t smoke.

    • 0 avatar
      ajla

      “or change your behavior.”

      Will you marry me SCE to AUX?

    • 0 avatar
      bball40dtw

      Yes, but when a married couple, each 30 years old, with no tickets or accidents since at least 2008, and only one claim since they’ve owner vehicles is paying $3000/year to insure two vehicles, there is a problem with the system.

      The only way I can change my behavior is to make it worse.

      • 0 avatar
        dal20402

        Is that a Detroit thing? I’m paying about $1150/year for two vehicles in the Seattle suburbs (and it was only a tiny bit more in the city). Married couple, 39/36, each of us has one “under 10” speeding ticket on the record. I suppose maybe it helps a bit that neither vehicle is used for a commuter and both incur fairly low miles (~10k for one, less than 5k for the other).

        • 0 avatar
          bball40dtw

          Yes. It’s the price I pay for living two and a half miles from Detroit.

          Both of our vehicles do under 10K miles a year now. My wife’s commute is something like 7 miles round trip.

          • 0 avatar
            SCE to AUX

            Hang on; I’m sure the day is coming when geography-based insurance rates will be considered discriminatory. Then we’ll all just pay more.

          • 0 avatar
            bball40dtw

            I wish they would use my zip and not lump me in with nearby cities, including Detroit.

          • 0 avatar
            krhodes1

            Is this also partially due to MI being a no fault state (IIRC)?

            Come to Maine, I pay <$1000/yr for three cars as a single guy. Very high limits, very low deductibles. My M235i will add $500/yr to that though, once it lands in the states.

      • 0 avatar
        87 Morgan

        Yikes! I pay less than 2k annually for full coverage on 4 cars. Perhaps you should shop your carrier.

      • 0 avatar
        CoreyDL

        Oh my gah that’s so much money. I almost can’t believe it when you share your insurance price woes.

        $552/yr!

  • avatar
    ant

    I would think that total miles driven would be a telling indicator of claims, but insurance companies don’t seem to take that into much account.

  • avatar
    Toad

    Statistically if you behave in certain ways you are less likely to file an insurance claim; surprise! Since insurance companies have to price their product based on risk assessment they are going to use all the predictive data they can to determine individual pricing. That cannot be shocking.

    People who live in a high crime area, drive a sporty car, don’t pay bills on time, etc generally file more insurance claims, and their rates are priced accordingly. Married boring suburbanites have fewer claims and pay lower rates.

    The alternative is that everybody pays higher rates to compensate for the statistically higher risk drivers. That hardly seems fair and would eliminate any individual incentive to be a safe driver.

    On the bright side, paying higher insurance rates because you are having a fun, carefree, and even irresponsible lifestyle may not be such a bad tradeoff.

    • 0 avatar
      Lorenzo

      “On the bright side, paying higher insurance rates because you are having a fun, carefree, and even irresponsible lifestyle may not be such a bad tradeoff.”

      YOLO!

  • avatar
    beastpilot

    This is news? People have been complaining about risk groups (married, not, male, female, etc) since I started driving in the ’90’s, and I got my first “your rate is partially based on your credit score” letter back in 2002.

    It’s based on my ZIP code too. How dare they!?

    What people always forget is that filing a insurance claim is optional. I carry a $2K deductible on everything and wouldn’t file a claim for less than $5K due to the fact it will effect my rates more than that over the years.

    My credit score makes it pretty obvious that I can afford small accidents and won’t file claims for them. Why shouldn’t they charge me less?

    • 0 avatar
      SCE to AUX

      While filing an insurance claim is indeed optional, repairing people is always more expensive than repairing cars.

    • 0 avatar
      VenomV12

      You should be thankful that your insurance rates aren’t based on your grammar and logic:)
      Please explain to me how your credit score shows your ability to pay for accidents? This should be good.

  • avatar
    FreedMike

    Interestingly enough, your electric bill doesn’t usually end up on your credit (though if you have DTE Energy, it definitely will).

  • avatar
    zbnutcase

    And your credit score has nothing to do with your ability to pay…

  • avatar
    VenomV12

    It should be illegal to use anything like credit scores to decide rates, it has no bearing on anything. If you don’t pay your insurance you don’t have coverage, period, they have nothing to lose like a credit card company or mortgage company. If you pay, you have coverage, if you don’t, you don’t, that’s it. Autonomous cars are going to ruin these guys lives anyway, that should be fun to see.

    • 0 avatar
      stuki

      Nothing should be illegal. Or, at least nothing Moses forgot to include.

      More currently practical, it’s not too far fetched to assume someone with a history of being too lazy to bother paying bills, are about equally uptight about getting his worn out brake pads replaced, changing to snow tires come fall, going through the hassle of getting cab home, cab to get the car in the morning after a few too many…..

      All you need for insurance rates to be reasonably reflecting risk, is a competitive insurance market. Even if something as non intuitive as hair color affects rates at a given company, unless they’ve got their statistics right, all they end up doing is losing potentially good customers.

      The focus should ONLY be on ensuring the market is competitive, nothing else. Not trying to second guess statistics based on how You feel about a certain trait. Or how PC the trait happens to be.

  • avatar
    PentastarPride

    I’m 25 and a male. I have excellent credit, own my own home, have a college degree and professional occupation. Not to mention, I have never been in an accident that I have caused (the only “accident” in my entire life was in 2009, where my car was sideswiped while parked along a busy street, something I couldn’t control). Since then I have never filed a claim for anything.

    It’s kind of like how single people pay more tax than married individuals, something that makes no sense at all (but everything about the government makes no sense to begin with).

    Speaking of which, I have an idea. If our congresscritters are too afraid to eliminate the tax code and replace it with a simple flat tax, why not enact a deduction for car insurance, dollar for dollar?

    • 0 avatar
      SCE to AUX

      I’m also a big fan of the flat tax, but it will never happen. There are too many special interests (including some that benefit me) at play for that to ever happen.

      • 0 avatar
        Syke

        And, it takes Congress out of the equation, except for coming up with the yearly percentage of tax owed. Which is easily understood by even the dumbest American. There’s no way in hell Congress is going to allow themselves to be hoist on that petard.

    • 0 avatar
      Power6

      most get a better deal as singles. Ive run our taxes both ways for a few years, as a curiosity, since you are required to file as joint when married. In general if both work you don’t get a better deal just take a look at the tables the married bands are not twice the single, they are lower. Therefore two people who make the same salary pay more tax when married. It certainly changes if only one spouse works compared to one single person but that is a different situation.

      I guess people just like to complain about problems that don’t exist…

      • 0 avatar
        krhodes1

        You are not required to file jointly when married. it’s just that “Married filing separately” is usually the biggest screwing of all. I do file my brother and sister-in-laws taxes that way due to my [email protected] brother’s back child support. If I didn’t SiL would lose here refund too. Better to get a smaller refund than no refund at all, when you barely have two nickels to rub together.

  • avatar
    Power6

    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…

    • 0 avatar
      CoreyDL

      “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.

  • avatar
    WildcatMatt

    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.)

Read all comments

Back to TopLeave a Reply

You must be logged in to post a comment.

Recent Comments

  • RHD: This is the last hurrah for internal combustion engines. Development money should be going to electric...
  • RHD: It will look amazing, too, balanced on the two front wheels.
  • Dan: Keystone wasn’t one decision this January that wouldn’t have affected production nor prices 6 months...
  • ajla: EVs becoming a normie culture war battleground will be bad for everyone so I’m sure it will happen.
  • ajla: The Keystone Pipeline decision may not be impacting current prices but I do think it is worth debating the...

New Car Research

Get a Free Dealer Quote

Who We Are

  • Adam Tonge
  • Bozi Tatarevic
  • Corey Lewis
  • Mark Baruth
  • Ronnie Schreiber