Are Non-Driving Factors Fair Considerations for Auto Insurance Premiums?
Car insurance rates are judged by risk. But to do the math, auto insurers use a complex formula into account to measure a person’s likelihood of getting involved in a crash. These formulas include numerous factors, some of which are not easily quantifiable.
Auto insurance premiums vary by location, age, miles driven, vehicle type, and many other considerations.
Location speaks of the frequency of traffic accidents in the area. Age sheds light on a driver’s experience behind the wheel and brain maturity, which is linked to risk-taking.
Miles driven is about how often a driver spends time on the road. Vehicle type explains a car’s susceptibility to damage due to its size and vulnerability to theft because of its safety features and market demand.
No customer could question the validity of the said factors, but most auto insurers go beyond them. Insurance companies tend to include non-driving factors to the equation, which sparks ethical debates, for they practically border on discrimination.
Some Factors Are Simply Determiners
Pro-consumer advocates argue that some non-driving factors are just used to assess things about a person that could be considered biased against certain customer groups.
Robert Hunter, the Director of Insurance at Consumer Federation of America, who is also an ex–Texas Insurance Commissioner, claims that auto insurers utilize a customer’s education and occupation to determine a person’s income and race.
Using such “qualifications” when making lending decisions is a practice frowned upon when done by creditors. Since all but one state (New Hampshire) uses credit as a requirement for drivers, logic dictates that auto insurers should not assess a person’s motoring risk based on economic status and skin color.
Certain Correlations Predict Crashes
On the other hand, insurers are adamant that all of the factors they examine are fair and objective. Auto insurance companies say that the different pieces of driver information, directly associated with motoring or not, are highly correlated with loss.
A car insurer is deeply interested in any statistic that could help assess a person’s chances of getting into a collision. Marital status is a good case in point. Being married would not necessarily improve someone’s steering skill, but having a family could make a person become more careful on the road. When put this way, it makes sense.
Industry trade groups add that rating factors are being scrutinized collectively, not individually, for they tell high and low-risk customers apart more accurately when blended together.
Not All Insurers Act The Same
They may be in the same business, but not all car insurers are cut from the same cloth. For example, a study found that most of them charge renters more than homeowners in many cities. But the same research also reveals that not all auto insurance companies treat home ownership as a rating factor.
The insurance industry does not have a cartel, and it is made up of capitalists that try to compete with each other for business. With online auto insurance comparison tools, anyone could exercise due diligence more easily by investigating which companies use “legitimate” criteria for charging premiums and which ones do not.
At the end of the day, the choice lies in the hands of the customer. After all, everyone is always free to shop around for the most favorable rate.
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