Did you know that moving to your adjacent ZIP code area – even if it’s barely just over the boundary – can save you hundreds of dollars from auto insurance premiums?
A nonprofit group called the Consumer Federation of America conducted a study on annual auto insurance rates from the 6 largest insurance firms in ten cities. Analysis showed that car owners who lived near each other (in some cases, even just 100 yards apart, or even next door) but had different ZIP codes were charged differently for their car coverage.
All other factors were the same, but addresses situated in less wealthy ZIP codes and have higher minority populations get higher insurance quotes. On average, the quotes are $410 more than those who live in wealthier and more “white” neighborhoods.
Photographs of the homes tested were also supplied as part of the study. For instance, two homes in Buffalo: one home had a yearly average cost of $1697 and the other home, on the other side of the line, had $2315.
Each city in the study showed that at least one insurance company asked for $200 more for the exact same coverage, just because the driver lived on the wrong side of a ZIP code line.
Jacking up rates
Douglas Heller, an insurance consultant who did the study’s analysis with the researchers, said, “Jacking up rates for living on the wrong side of the street is arbitrary and unfair.” (Specific home addresses were taken for the research, but actual insurance information of the people involved was kept confidential.)
But we cannot generalize — because not all insurance companies did this. For example, in all but one of the cities studied, at least one company asked for a slightly lower or equal premium from a driver who lived in the poorer ZIP code area. (Detroit is the exception because only two companies provided online quotations.) In Atlanta, Allstate asked for 2% less from lower-income areas, while others asked for 26% more (on average) from the poorer ZIP codes.
Insurance providers debate that there are a lot of factors affecting the quoted premium, and the address is one of them – because it is a gauge on where the car is often driven. An industry group called The Property Casualty Insurers Association of America said that this practice, called territorial rating has been in place for a long time and is perfectly acceptable; coverage expenses were higher in particular areas due to congestion, weather, road quality, and legal costs.
The association also didn’t entertain the suggestion of the Consumer Federation of America that income and/or race bias takes placing in deciding how much the premiums are. They said that state laws prohibit this bias and mandate insurers to “fully comply with the laws of each state.”
In this light, Michael Barry, Insurance Information Institute spokesman, said that car insurance pricing is “colorblind”.
Other criteria for rates
The Consumer Federation says that the results of their study shows a much wider industry practice when it comes to assigning premiums, which factor in socioeconomic criteria (job title, homeownership, education, and credit history). It goes against these factors and proposes a person’s driving history and how many miles he/she has driven should be the criteria used instead.
In a letter, the federation told all state insurance commissioners to think about the findings of this study. J. Robert Hunter signed the letter. He is the director of insurance for the federation. He said that they aren’t 100% against using ZIP codes. There may be “actuarially sound” disparities in risk between motorists who drive through less populated locations and those who go through dense urban areas.
He continued that drivers in nearby ZIP codes should not experience significant, if any, disparity in the premiums – it is the responsibility of regulators to avoid these premium differences, as cited in the report.
No comment was given by the National Association of Insurance Commissioners . The association’s spokeswoman, Stefanie Bryant, said that their car insurance working department was analyzing “similar” issues. (Consumer advocates have criticized the working group, saying its data collection lacks rigor.)
States and insurers involved in the study
The federation compared rates for hypothetical good drivers who have the same characteristics but live in different ZIP codes for its analysis: in Atlanta; Buffalo; Austin, Texas; Columbus, Ohio; Minneapolis; Detroit; Denver; Philadelphia; Trenton; and Tampa, Florida. They sought online quotes for standard coverage from Farmers, Allstate, Liberty Mutual, Geico, Progressive, and Nationwide. (State Farm did not let the researchers get enough info for the report.)
Costs across the ZIP code lines went up the most for Farmers, with a 31% average change; Allstate follows at 28%. They referred the inquiries to Mr. Barry, who responded, “Where you drive is strongly linked to the likelihood that you’ll get into an accident.”
Liberty Mutual’s premiums had little disparities between different ZIP codes, except for quotes for Detroit and Columbus.
Common questions about auto insurance costs
Q: How can I keep my insurance premium as low as possible?
A: If consumer advocates and insurers can agree on something, it’s this: Shop around and get quotes from different companies. Getting different quotes for the same address reveals a competitive marketplace, where insurers take different factors into consideration.
Q: Does my credit impact the quotes I get?
A: Majority of US states let insurance firms offer a credit-based score when computing rates. This means that working on getting a good credit history by paying your bills on time and making sure your credit card balances are below your limit can help you get lower premiums. Other states (Hawaii, Massachusetts, and California) bar the use of credit-based scores to calculate premiums.
Q: Where can I file complaints about my car insurance?
A: States regulate insurance policies. You can file a complaint form online. The National Association of Insurance Commissioners has a “map” on its website. Here you can find links to the proper complaint forms for your respective state.
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