Insurance agents advising clients with bad credit have a difficult task in front of them. According to new research from Consumer Reports, risky borrowers are penalized by auto insurers far more severely than drivers with a whole host of other liabilities – including a past drunken-driving conviction.
Researchers with Consumer Reports reviewed price quotes from more than 700 US firms, including large players like
Allstate,
GEICO, Progressive and
State Farm, in order to determine which non-driving factors are treated with the greatest gravity.
Consistently, people with a “good” credit score paid $68 to $526 more than those with scores of “excellent.” The gap was so substantial that drivers with poor credit in Florida paid a whopping $1,552 more than those with the best scores.
And it holds true even when a consumer with poor credit has never filed a claim.
“If a car-insurance company calculates that a consumer’s credit score isn’t up to its highest standard, it often charges a higher premium – even if the customer had never had an accident,” Consumer Reports researchers said.
Credit also outweighed past moving violations in terms of effect on premiums.
States where credit score matters most charge more than $2,000 extra to drivers with poor credit. They include: Washington, Idaho, Montana, Nevada, Texas, Oklahoma, Kentucky, Michigan, Florida, South Carolina, New York, New Jersey, Delaware and New Hampshire.
Regulations in Hawaii, California and Massachusetts prevent insurers from using credit information to define rates.
Consumer Reports suggest that using such non-driving factors to formulate rates is patently unfair, while Insurance Information Institute President Robert Hartwig stresses that credit scores are an “important part” of rate setting and “strongly predictive of loss.”
According to a previous report from Wallet Hub,
Farmers Insurance relies the most heavily on credit data, with a 62% fluctuation in premiums observable between consumers with excellent credit and those with bad credit. GEICO, meanwhile, relied on credit data the least, with a 32% premium fluctuation.
Other carriers considered include Progressive (60% fluctuation), State Farm (54%), and Allstate (52%). Researchers concluded that Progressive is the most transparent in its use of credit score, followed by Farmers, American Family and USAA Insurance Group.
In the same report, Consumer Reports rated the nation’s five largest auto insurers in terms of average price.
Allstate led the pack, charging the most expensive average rate of $1,570, followed by Progressive’s $1,414. GEICO charged significantly less ($1,177), as did State Farm ($1,147). USAA emerged as the nation’s least expensive insurer, charging an average $817 for auto insurance.
The team generated more than 2 billion quotes over a two-year period in all 33,419 US ZIP codes.
