Do Low Income People Face Unfair Auto Insurance Rates?

Posted by Bradley Thayer | Dec 02, 2015 | 0 Comments

You might think that in order to achieve low car insurance rates all you would need is a good driving track record. According to the recent article on TribLive Uneven insurance pricing targeted, you would be wrong.

There are many other factors at play, including “…credit scores, occupation, education level or other factors.” Unfortunately the inclusion of these factors often impacts negatively on low-income drivers who are routinely getting priced out of insurance coverage.

What impact does a driver's credit score or marital status have on his ability to drive? Perhaps very little, but insurance companies are for-profit corporations after all. Fairness may not always be the primary concern underpinning these practices.

The TribLive article included input from Doug Heller, a California-based consultant to the CFA. He said:

 … low-income drivers may be less likely to shop around for rates partly because of lower financial literacy. Insurance companies spot that  and will raise premiums on those drivers because they think they'll stick with them rather than go to a competitor.

The insurance companies charge the most to the people who can afford it the least. That's because auto insurance companies place such a large emphasis on their customers' occupation, level of education, credit history and other factors related to wealth, rather than driving safety.

Insurance companies have a different take on it.  According to Robert Hartwig, president and economist at the Insurance Information Institute, a nonprofit communications group supported by the insurance industry,  insurers use legitimate tools to set prices based on their financial risk. He said that auto insurance rates are declining for all drivers and that by studying market forces rate-setting becomes less subjective which could lead insurance companies to offer more loyalty discounts.

The Insurance Information Institute opposes the elimination of credit scores and other evaluation techniques saying that they have proven to be useful in measuring the financial risk of drivers.

As the Triblive article points out, all states except New Hampshire require a minimum level of car insurance in case they cause property damage or injury. Unfortunately, those on a low income can feel that this gives them the choice of driving illegally or not at all.

In Washington, according to the Washington State Office of the Insurance Commissioner, insurers may consider your age, driving record, where you live, credit history, and other factors to decide if they will offer you coverage. In Oregon, insurers can't use a policyholder's credit information to raise premiums at renewal. Also, the law prohibits insurers from canceling or refusing to renew existing policies because of credit history problems, but they are able to use credit information when deciding to issue a new policy.

Not all states allow credit information to be used to determine drivers insurance premiums. California, Hawaii and Massachusetts prohibit them from doing so while legislation was introduced in several others to prevent insurance companies from using “…credit scores, occupation, education level or other standards in factoring how much they should charge for car insurance.”

In addition, California, Florida, Indiana, Maryland, Ohio and, most recently, Pennsylvania, have ruled that insurance companies cannot use “price optimization” — evaluating consumer data or rivals' prices to determine whether a customer is likely to shop around — to set prices for policies.

Oregon and Washington states also have some restrictions on the use of credit scoring and pricing information. In Oregon for example, an insurance company cannot charge more for coverage based on your age, gender, marital status, domestic partnership status, disability, or partial disability unless the refusal, limitation, or higher rate is “based on sound underwriting or actuarial principles.”

Similarly in Washington, according to the Washington State Office of the Insurance Commissioner, “… insurance companies cannot use your credit history by itself to deny you coverage or cancel your policy.”

They also cannot use the following factors to deny coverage or set rates:

  • The number of credit inquires
  • Collection accounts identified as medical bills
  • The initial purchase or finance of a vehicle or house that adds a new loan to your existing credit history
  • The use of a particular type of credit card, debit card, or charge card
  • Your total available line of credit

About the Author

Bradley Thayer

Brad Thayer is a partner at the Schauermann Thayer firm. Brad is licensed in both Oregon and Washington. He has been practicing law since 2015. He was presented the 2018 Rising Star Award by the Clark County Bar Association. Brad's practice focuses on automobile collision, motorcycle, bicycle, pedestrian injury, dog bite, and myriad other types of injury and insurance cases. During his free time, Brad enjoys following the Portland Trail Blazers, playing basketball, going to concerts, and playing the drums. He especially enjoys hiking in the Columbia River Gorge and exploring other Northwest wonders.


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