Low-Income Discrimination in Auto Insurance Industry

The auto insurance industry has landed in the spotlight over accusations of discrimination against middle and low-income households. A new study backed by the Consumer Federation of America (CFA) says the industry regularly distributes high-priced policies to individuals with less money, making it difficult for them to improve their lives financially.

Auto Insurance Companies Accused of Unfair Pricing

A new report authored by Stephen Brobeck and J. Robert Hunter was released this week called “Lower Income Households and the Auto Insurance Marketplace: Challenges and Opportunities,” that contends auto insurance companies regularly issue low and middle-income consumers high-priced policies.

According to the study and the Bureau of Labor Statistics, financially-strapped households that own cars pay more than $700 in annual premiums and moderate-income families pay more than $1,000. In both instances, they have a difficult time lowering their rates because there are fewer insurance companies located in those areas.

Further, some states reportedly charge more for minimum liability coverage than standard–an act that discriminates against purchasers of minimum coverage–while also increasing costs based on where they live.

Since so many households have a difficult time affording auto insurance coverage, many are choosing to simply go without. “In large part because of high costs and disparate impacts, a significant minority–perhaps one-quarter to one-third–of [these households] do not carry auto insurance and are driving illegally,” the study said.

Policy Discrimination Keeps Low-Income Families Down

Brobeck, who is also the executive director of the CFA, discussed that the repercussions of discrimination from auto insurance companies can be significant.

“In some areas, many responsible lower-income drivers are required to spend more than $1,000 a year for liability coverage that is often unfairly priced and provides no real insurance protection to them,” he said.

Not all cities have a well-developed public transportation infrastructure, so many consumers who can’t buy a car due to insurance requirements are missing out on job opportunities. As Brobeck and Hunter pointed out, these missed opportunities could very well help them increase their incomes and pay for coverage.

The researchers recommended that auto insurance companies lower premiums to people who have a history of safe driving practices, regardless of their income or location, to help eliminate discrimination. They plan to bring their findings to a meeting of state insurance commissions soon to address coverage discrepancies in further detail.