Drivers who upgrade policies pay a penalty
Consumers who upgrade from minimum automobile insurance policies are likely to pay more in premiums than those who already have a higher-value policy, according to a new study from the Consumer Federation of America.
The CFA looked at auto insurance quotes for $300,000 coverage in bodily injury liability in five cities across the country, including Denver. On average, someone who already had that level of coverage was quoted a premium $1,849.57 per year.
But those who had the minimum liability insurance coverage required in their state the average quote came in at $2,103.33 for the exact same policy.
That equates to a surcharge of $253.76 or 14 percent. In metro Denver, the average gap was $180, according to the CFA. Given that low-income drivers are more likely to carry minimum coverage, the group called the pricing practices discriminatory.
“Auto insurance is not just mandatory in most states, it is an important asset protection tool,” said J. Robert Hunter, the group’s director of insurance, in a statement. “As folks’ financial situations improve and they opt to buy more coverage, they should expect equal access to the products and services available to others.”
He called pricing based on a driver’s prior purchases “actuarially unwarranted and an entirely unfair tax for being poor.”
Allstate, Farmers, Geico, Liberty Mutual, Progressive and State Farm, the largest auto insurance provider in Colorado, were included in the study.
Geico had the largest quote gap in Denver at $360. The gap was $180 at State Farm, $168 at Liberty Mutual, $120 at Progressive and $72 at Allstate. A comparison wasn’t available for Farmers, which treated the upgrading drivers as non-standard and sent them to an affiliate for coverage.
Besides Denver, the cities examined included Buffalo, N.Y.; Jacksonville, Fla.; Prairieville, La.; Simi Valley, Calif., and Towson, Md.
California prohibits insurance companies from penalizing people who upgrade their coverage, and the study found no difference in pricing in Simi Valley. The CFA sent a letter to
insurance commissioners last week asking them to follow California’s example.
“This information was shared with the division last week, and we will be looking into this to see if there is evidence of this happening, and if so, how the division will address this,” said Vincent Plymell, a spokesman for the Colorado Division of Insurance.
Researchers sought quotes for coverage of $100,000 in injury-related coverage and $300,00 for all injuries stemming from an at-fault accident. One quote was for someone who already had that kind of coverage. The second was for someone who had the minimum coverage, which in Denver is $25,000 and $50,000.
The drivers tested drove exactly the same car, had the same address, same commute and a perfect driving record. And yet the quotes came out different.
Carole Walker, executive director of the Rocky Mountain Insurance Information Association, called the report flawed, saying it wasn’t based on an actuarial study of overall risk.
“This very basic, nonscientific survey doesn’t take into account many of the different individual risk factors that affect what two real drivers would pay for car insurance that have nothing to do with the limits of their policies,” she said.
The length of time a policy has been in place and gaps in coverage, for example, are considerations that influence a premium quote.
Walker also warned that if national reports are used to push for legislation in Colorado and a heavier regulatory hand, it could have the unintended consequence of raising premiums for all drivers.