Why Are Low Income People Charged More For Car Insurance?

Laws in Washington State and around the country were passed long ago requiring all drivers carry car insurance to that they can cover any damage or personal injury costs resulting in an accident. I don’t think there’s any doubt in anyone’s mind that this is a good thing, as long as it’s equitable.

As Washington personal injury attorneys with a diverse clientele spanning across all income brackets, we are right in the middle of the insurance issue. That’s why we were a little steamed about a study that came out this week regarding the disparity in charges for car insurance to lower income drivers than higher income drivers.

Lower Income Insurance Study

A new and quite extensive report from the Consumer Federation of America (CFA), an organization that seeks to advance consumer interests through advocacy, research, and education, has shown some major rate disparities by income amongst some of the largest car insurance companies in America.

In the report the authors pointed out that for many poor people, the cost of car insurance can impede car ownership and in cases of lower cost cars, can exceed the cost of the vehicle itself. That has broad economic implications since those without cars have a harder time getting to work, school, day care or the grocery store.

“There is much academic research that clearly shows that if you have ready access to a car, it dramatically improves your economic opportunities,” said Stephen Brobeck, executive director at CFA.

Researchers cited 2006 research that found that those with less education and working in less skilled occupations often pay premiums that were on average 40% higher. Certainly this has many different factors involved in it, but the wider view into the disparity suggests that there may be a larger inequality issue here.

Even though insurers are prohibited from asking for a potential customers income, the authors of the study contend that many of their methods put lower- and moderate-income households with between $20,000 to $40,000 in earnings per year at a disadvantage. The reason for this is that insurers, though not asking directly, have other roundabout questions that are perfectly legal with give them a fairly accurate gauge as to the income of the person they are interviewing.

One of the main reasons for this is that the cheaper the car insurance is on paper, the more the people are paying for the actual coverage. Researchers liken it to going to a store with large items that only wealthy people have access to and getting the item for the same price as a smaller item at another store that poor people frequent. The pricing versus coverage is often wildly disproportionate.

After examining the data and researcher’s comments, the CFA suggests that pricing should be largely influenced by factors that drivers can control, like the cars they drive and how far and safely they drive them.

“Poor people, we know from the data, they spend a lot less on gas, which means they are driving less,” said J. Robert Hunter, co-author of the paper and director of insurance at the group. “So if insurers more fully reflected miles driven in pricing, it would lower the rate for poorer people.”

Determining Rates

Differences in rates are nothing new. If you are a young male who drives a fast car, you know that well. Why? Because males between the ages of 16 and 25 are statistically the most prone to car accidents and most of the accidents are caused by speeding. The numbers ring true regardless of income. These rates come down at a certain point after the driver has proven they are responsible and hit a certain age.

What determines car insurance rates and do they effect the poor disproportionately?

• Age – Generally, the older you are, the fewer accidents you’ll have than less experienced drivers, particularly teenagers. Insurers charge more if teenagers or young people below age 25 drive your car. No effect.
• Credit – Insurance companies use FICO scores as a factor in insurance rates. Credit-based insurance scores are based on information like payment history, bankruptcies, collections, outstanding debt and length of credit history. Regular, on-time credit card and mortgage payments affect a score positively, while late payments affect a score negatively. Yes. Poor people generally have lower credit ratings overall.
• Location – Local statistics influence Insurance rates, such as the number of accidents, car thefts and lawsuits, as well as the cost of medical care and car repair. Yes. Income is a large determining factor as to the crime rate of they area in which they live.
• Make and Model – Automobiles that are expensive, have high theft rates, higher repair cost or have poor safety records cost more to insure. No effect.
• Odometer Reading – If you drive a lot you increase your chance for accidents, the more you’ll pay. If you drive less than 10,000 miles a year, you will pay less. Some companies will give discounts to policyholders who carpool. Yes. As inner cities with more access to public transit become more gentrified, it forces the poor to move farther out, forcing them to put more miles on their odometer to reach their jobs.
• Time Without Insurance – Plus there’s a time lag. You may also pay more if you haven’t been insured for a number of years. Yes. Poor people do not pay for items that they don’t use. If they live near their work, then they may have long periods where they do not drive.
• Safe Driving Record – If you have a lot of accidents and serious traffic violations, the higher your rate of course. No effect.
• Size of Policy – You’ll pay more for a large policy. Generally, insurance companies offer discounts if you have your homeowners and auto insurance policies with them. Yes. Many lower income people do not own their homes, boats, etc and do not have access to bundling discounts.

Seattle Car Accident Lawyer

There is a much larger poor population than there is rich, so it would be unreasonable to say that poor people get into more accidents based purely on population. There is also little to no evidence that, just because a person is poor, they are more prone to accidents.

We’re concerned about this issue because insurance companies will use any excuse to gouge the public and when one of their loyal customers receives a personal injury in a car wreck, they do everything in their power to avoid paying what they agreed to pay in order for the individual to receive proper care and/or just compensation.

If you or someone you know has been injured in a car accident anywhere in Washington state, you need a skilled lawyer to deal with the insurance companies to assure you the best settlement. Call the Seattle car accident attorneys at Phillips Law Firm for a free consultation.

Real People. Real Justice. (800) 708-6000