Coming from non-standard insurers could be a disadvantage for some drivers, despite having a perfect driving record, if they choose to transfer to some of the major auto insurance carriers.
That was the finding of an experiment from the Consumer Federation of America (CFA), after it tried to find how major insurers price their policies for drivers from underserved markets. Non-standard insurers cover underserved markets, which usually comprise of risky groups, minorities and low income individuals.
The test involved asking for quotes from seven of the country’s largest insurers in 20 cities for drivers with a perfect record who were previously insured with smaller insurers, compared with those who were already covered by these major carriers.
Specialty publication, Financial Regulation News reported that
Allstate,
Farmers and American Family, factored in the driver’s previous insurer in determining the policy premium. According to the report,
Allstate charged 15% more, while
Farmers and American Family asked for 9% more in premiums under a similar scenario.
“It’s one thing to charge higher premiums to people with violations and accidents in their past, but it is unfair to punish a good driver simply because of where she previously purchased insurance,” J. Robert Hunter, CFA’s director of insurance and former Texas insurance commissioner said in the News report.
However, there were insurers who did not increase rates based on the motorist’s previous carrier. The report said that
State Farm, Progressive and
Liberty Mutual charged the same rates regardless of where the motorist was previously insured.
Meanwhile, David Snyder, vice president of policy development and research at the Property Casualty Insurers Association of America (PCI), explained that insurance companies do not engage in socioeconomic pricing, as in the case of the CFA experiment.
“Consumers should be assured that auto insurance pricing is closely scrutinized by state insurance regulators and is subject to rigorous actuarial standards, which ensure that all rating factors comply with the law,” Snyder emphasized.
“Data shows customers moving from a non-standard policy can have a higher likelihood of future losses than those who come from other companies. As a result, their rates are different to reflect the different levels of risk,” he claimed.
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