Some drivers often overcharged for car insurance
Many insurance companies may be charging good drivers more than is necessary for coverage.
A Consumer Federation of America analysis of 81,000 premium quotes from Geico, Progressive, State Farm, Allstate, Farmers and their affiliates shows that none offer a basic auto insurance policy to safe drivers in 50 large urban regions for less than $500 per year.
In nearly half of those regions, meanwhile, there was at least one predominantly lower-income zip code area where those major insurers charged over $500 for basic yearly premiums. In fact, in nine of the 50 urban areas in question, car insurance prices in all of the lower-income zip codes analyzed were over $500.
"Our research raises important questions as to whether state-mandated auto insurance is priced fairly and is affordable for many lower-income Americans," Tom Feltner, CFA's director of financial services and the report's principal author, said in a statement.
"Drivers need a car to get to work or school," he continued. "High insurance premiums act to deny these Americans economic opportunity and also help explain why so many lower income Americans drive without insurance."
For the past three years, the consumer protection group has tracked the price of average auto insurance premiums for a typical, moderate-income safe driver. It found that insurers routinely quote those drivers premiums of well over $500 annually, and often in the $1,000 or above range.
CFA says the insurers offered price quotes on a policy without obtaining information about a driver's credit score. Instead it used other factors, such as education and occupation, that "tend to disadvantage low- and moderate-income drivers," the group concluded.
Many lower-income drivers aren't able to comparison shop for the lowest-priced insurance, Feltner notes. About two-fifths of those drivers, when financing their cars, often have to purchase collision and comprehensive insurance, as well as liability coverage, which further drives up costs.
Having auto insurance is an accepted part of car ownership in the U.S. With the exception of New Hampshire, insurance is required across the country. But the Treasury Department's Federal Insurance Office estimates about 14 percent of motorists nationwide, between 2002 and 2009, were uninsured.
The FIO in April started an investigation into the issue of auto insurance affordability for lower-income Americans. CFA director of insurance J. Robert Hunter expressed hope that the government will more closely examine how insurers offer quotes.