Auto Insurance

One-Fifth of All Washingtonians Live in ZIP Codes with Unaffordable Auto Insurance

DC Should Follow Other States Lead to Ensure Fair and Affordable Auto Insurance for All District Residents

Washington, D.C. – At a hearing today, before the DC Department of Insurance, Securities and Banking, the Consumer Federation of America (CFA) called on the District of Columbia to adopt strong consumer protections to address the high cost of auto insurance, particularly for its lower-income citizens. DC Insurance Commissioner Stephen Taylor called today’s hearing to investigate auto insurance rates and rating practices in the District.

According to the Federal Insurance Office, three ZIP Codes in DC have a median auto insurance rate that is unaffordable to its residents. These are 20019 (54,358 residents), 20020 (49,864 residents) and 20032 (35,633 residents).  This means that 140,000 District residents – 20 percent of DC residents – live in ZIP Codes where rates are deemed unaffordable.

“Since DC law requires drivers to purchase auto insurance, it is critical that the District address the affordability of insurance through a number of reforms,” said J. Robert Hunter, Director of Insurance for CFA.  Changes needed to protect DC residents include:

  • Moving to a “prior approval” approach to rate setting that requires insurance companies to justify rate increases before hiking prices on drivers;
  • Incentivizing safe driving and loss reduction by basing the cost of on driving-related factors such as driving record and annual miles driven; and
  • Adopting of a low-cost auto insurance plan targeted to lower-income residents.

A copy of CFA’s complete testimony to the Commission is available here.

For many low- and moderate-income households, it is not the cost of the car but the cost of auto insurance that becomes the biggest barrier to mobility. Even in DC, where public transit options exceed many other American cities, being unable to drive can be debilitating. Limited mobility affects access to jobs, obtaining health services, access to education, shopping at discount stores, and a vast array of personal and recreational activities.

In 2016, the Insurance Research Council estimated that 15.6 percent of DC residents drive uninsured, exceeding the national average of 13 percent. In addition, many more District residents simply do not drive at all due to the high price of insurance coverage. Whether, people choose to drive uninsured, or not drive at all, over-priced insurance is a severe disadvantage to lower-income residents.

“If the choice is between paying for insurance and feeding my family, I know what I would do,” Mr. Hunter said. “We have to make sure that is not a choice faced by District residents.”

CFA research shows that the rating plans used by insurers to price insurance unfairly discriminate against lower income consumers in a number of ways, including:

  • Good drivers with less education, pay more than those with college degrees;
  • People with lower-paying jobs, pay more;
  • People with poor credit, perhaps caused living paycheck-to-paycheck, pay more;
  • Good drivers, who rent rather than own a home, or get divorced, or had a break in auto insurance coverage, or were insured previously by a non-standard insurer, pay more; and,
  • There is even a “widow penalty,” in which women are surcharged when their husbands die. In fact, women pay more for coverage on average, contrary to consumer’s widely held beliefs.

These socio-economic related surcharges on one’s policy often mean that a person with a perfect driving record pays more, sometimes much more, than a person with wealthy characteristics who has accidents and tickets on their record.

“Some of these classifications are proxies for prohibited rating classes such, as race, income and others, simply don’t have a meaningful, causal relationship to the risk of an accident,” said Hunter. “Insurance should be priced on how we drive, not who we are.”

In addition to testimony regarding the many ways safe drivers are overcharged because of their socio-economic status, CFA also described its growing concern with new developments in pricing based on models relying on “Big Data” and artificial intelligence (AI). Citing recent research by law professors Daniel Schwarz and Anya Prince, CFA warned that “proxy discrimination” produced by AI has the potential to cause substantial social and economic harm.  CFA urged changes to DC’s anti-discrimination laws in order to combat proxy discrimination in the age of AI and “Big Data”.

CFA recommends that the District consider one’s driving record, number of miles driven, and years of driver experience as the three most important insurance cost rating factors and eliminate the use of socio-economic factors. “Prioritizing these three driving factors minimizes the potential dangers of socio-economic classification and “Big Data” discrimination,” said Hunter.

CFA also called on DC to adopt plans, similar to those of California and New Jersey to help low-income, good drivers.  Using such a plan, the District could address the large number of uninsured drivers by providing good drivers, who are financially challenged, a lower cost option. California offers such a program that sells affordable insurance policies to lower-income drivers for between $267 and $642 per year, without requiring a subsidy from other drivers or taxpayers. These low rates show the power of this program to reduce auto insurance prices. There is no reason these programs can’t be implemented for the residents of DC.