Renter? A perfect driving record may not lower your car insurance rates

Many renters in the U.S. are getting a raw deal when it comes to paying for car insurance.

That's the conclusion of the Consumer Federation of America (CFA), which claims in a new study that renters in some major American cities pay more -- in some cases far more -- than homeowners for the same basic liability auto insurance.

For a 30-year-old motorist with a good driving record, premiums averaged seven percent higher -- about $112 per year -- for state mandated auto insurance coverage, the Washington, D.C.-based consumer advocacy group said, citing what it called the "unfairness and arbitrariness" of auto insurers.

According to the CFA, Liberty Mutual penalized renters an average of $307 a year, the most of any major insurer in the study. But another insurer's rates for renters were $768 more in Louisville, Kentucky, and $924 more for yet another insurer in Tampa, Florida.

Liberty Mutual did not immediately respond to a request for comment.

Among the major insurers assessed in the study, GEICO was the only one that didn't use home ownership as a rating factor.

The Insurance Information Institute (III), which represents auto insurers, said the study was "flawed" because it only looked at one type of driver - a woman who owned a Honda - in a few densely populated cities where accidents are more frequent than the nation as a whole.

The III also said the study didn't take into account "multi-line" policies, whereby policyholders get a discount for having both their auto and homeowners insurance policies with the same company.

But both sides agreed on one thing. "If you're looking for car insurance, it makes sense to shop around every year," said James Lynch, the III's chief actuary. "The CFA's study showed how big the difference is in pricing."

The CFA's insurance department, led by former Texas Insurance Commissioner J. Robert Hunter, has published numerous studies claiming that certain groups -- among them widows, African-Americans and people with low credit scores -- pay higher rates for car insurance, which is mandatory in almost every state.

Homeownership, like education and other methods insurers use in deciding rates, is a predictor of the market insurers are after, Hunter claims. The industry's pricing structure "encourages people to be CEOs rather than janitors," he said in conference call to discuss the CFA's findings.

Instead, Hunter and the consumer group believe that insurers should base rates strictly on driving records, meaning traffic tickets and accidents. Hunter cited California as a state that's moving in that direction.

According to III data, California ranks about average in terms of car insurance rates.

Other state regulators have also been listening to CFA. In 2015 the group attacked "price optimization," a practice of identifying policyholders who were unlikely to switch policies every year so insurers can raise their premiums without losing them. Since then 18 regulators have banned the practice.

States, rather than the U.S. government, control insurance regulation.

The III's Lynch argues that past performance is not an indication of how people will drive in the future, and socioeconomic data like homeownership is a valuable tool in helping insurers find out who should pay less for insurance -- and who should pay more.

"If you look at surveys, you find that 98 percent of all drivers think they are average or better, but 5 percent have accidents each year," he said. "Insurance computer models try to find which 5 percent that will be. And they've gotten very sophisticated in doing it."

Should socioeconomic data like credit card scores, zip codes and homeownership be used in deciding car insurance premiums? Or is it better to have "one size fits all" policies? That depends.

"As a consumer, you just want the insurer who'll give you the lowest rate," Lynch said.