Washington, D.C. – Consumer Federation of America (CFA) released a new report today detailing the impact of auto insurers’ use of consumer credit information on good drivers with only fair or poor credit scores. Across the country, consumers with poor credit annually pay hundreds or even thousands of dollars more for the basic auto insurance coverage mandated by state laws.
“On average, a consumer with poor credit has to pay twice as much for auto insurance as a driver with excellent credit, even if everything else, including their driving safety history, are the same,” said Douglas Heller, CFA’s Director of Insurance and the study’s co-author. “Not only is this unfair to safe drivers, because of longstanding and institutional biases, the use of credit history for insurance pricing leads to disproportionately higher premiums for lower-income drivers and people of color.”
The report found that nationwide, American consumers with clean driving records and excellent credit pay an average annual premium of $470 for state-mandated auto insurance. But consumers with fair credit pay an average premium of $701—with the same driving record. And good drivers with poor credit pay an average premium of $1,012—a $542 or 115% increase compared to drivers with excellent credit.
“Your auto insurance premium should be based on your driving record, not your credit score,” said co-author Michael DeLong, CFA’s Research and Advocacy Associate. “You shouldn’t have to pay more in premiums because of a factor unrelated to your driving, and as long as companies are allowed to use credit this way, millions of safe drivers in America are being overcharged for their auto insurance.”
The overwhelming majority of auto insurers practice this discrimination. Only California, Hawaii, and Massachusetts prohibit the use of credit information in auto insurance pricing. In Florida, consumers with poor credit pay 143% more than drivers with excellent credit for auto insurance. In Minnesota, consumers with poor credit pay 172% higher premiums. Michigan consumers with poor credit pay 263% more for auto insurance, with an average statewide premium of $2,667, and in many ZIP codes across the country, consumers with poor credit pay even more just to comply with their state’s mandatory insurance law.
Evidence also shows that insurers, on average, consider credit information a more important rating factor than a consumer’s driving record. In most states, consumers with perfect driving records and poor credit pay more for auto insurance than drivers with a conviction of driving under the influence of alcohol.
The report concludes that state governments should put consumers first and ban the use of credit information in auto insurance. States should also devote more resources to analyzing rate filings, reject rate filings that unfairly discriminate based on credit information, and enact reforms to combat unfair discrimination and bias in information, data models, and algorithms that insurers use.