Illinois car insurance roulette: More evidence auto insurance pricing is biased against the poor
Traffic backs up during heavy rain in the Chicago area last month. A new report says Illinois drivers with poor credit pay more for auto insurance than people who have excellent credit — even if those with bad credit have a good driving record.
Pat Nabong / Sun-Times
You might be an excellent driver, but, if your credit score is less than excellent, expect to pay more for car insurance — an average of $491 more a year in Illinois, a new study shows.
The findings by nonprofit advocacy group Consumer Federation of America offers more evidence that auto insurance pricing is biased against the poor.
And it comes as consumers have been hit with some of the largest price increases in years for car insurance.
The group’s report echoes a Chicago Sun-Times Watchdogs investigation that tested insurance companies’ online price-quote tools and found price disparities that hurt women, renters, people working jobs that don’t require college and people living on the “wrong” side of a ZIP code dividing line.
The group found that credit history has such an outsized impact on rates that an Illinois driver with a conviction for driving under the influence but with an excellent credit history paid $862 less a year, on average, for car insurance than a person with a good driving record but a poor credit history.
“Because credit history correlates to race and income, raising premiums on drivers with lower credit disproportionately harms low-income consumers and people of color,” the report said.
The use of credit history in insurance pricing is a common practice. Only California, Hawaii and Massachusetts prohibit the use of credit information in setting auto insurance rates.
The consumer group’s analysis found that nationally drivers with excellent credit pay an average of $470 a year for state-mandated car insurance compared with $701 for drivers who have fair credit and $1,012 for drivers who have poor credit. That’s based on rate data from 10 major insurance companies.
In Illinois, the average annual premium was $424 for drivers with excellent credit, $607 for drivers with fair credit and $915 for those with poor credit.
ZIP codes and census tracts are hugely important in setting rates, which means people who are struggling financially and living in certain ZIP codes could get hit even harder.
State Rep. Will Guzzardi, D-Chicago, who has pushed for stricter regulation of car insurance, says the data shows how the recent rate increases have been especially hard on low-income consumers.
“Drivers are facing staggeringly higher car insurance premiums just on the basis of having bad credit, and we know who is being harmed,” Guzzardi says.
State Rep. Will Guzzardi, D-Chicago: “Drivers are facing staggeringly higher car insurance premiums just on the basis of having bad credit, and we know who is being harmed.”
Ashlee Rezin / Sun-Times
For its analysis, the consumer group purchased data in 2020 from Quadrant Information Services, an insurance industry analytics business, for rate filings by major insurance companies across the United States.
For its credit score comparisons, it used a fictitious driver described as a 35-year-old unmarried renter with a high school diploma who has a 12-mile daily commute, no accidents, moving violations or license suspensions, no lapse in coverage and drives a 2011 Honda Civic LX.
State Farm, the biggest auto insurer in Illinois, had some of the highest disparities. According to an additional analysis the consumer group did for the Sun-Times, State Farm charged an Illinois consumer with poor credit about three times the rate that someone with excellent credit would pay.
Progressive also roughly tripled prices for people with poor credit, the analysis showed.
Representatives of State Farm, Progressive and Allstate declined to comment.
A little-regulated industry
Major auto insurers have raised rates in Illinois by more than $1.7 billion in less than two years. To support those increases, they often cited more frequent and severe accidents and increased costs for repairs, replacement vehicles and medical bills due to inflation.
Allstate, the second-largest auto insurer in Illinois, with headquarters in Northfield, announced another rate increase last month. That 11.2% average increase, which takes effect Aug. 17, means its average premium in Illinois will have risen about 60% since the start of 2022.
Allstate executives said during an earnings call Wednesday that price increases will continue.
Bloomington-based State Farm has raised premiums by more than 12% this year, on average.
The state’s third-largest insurer Progressive has had average rate increases of 8% to 10% this year.
Auto insurance in Illinois is more lightly regulated than in other states. Insurers can set whatever rates they choose and are required only to inform the Department of Insurance of their plans.
The insurance industry says credit history is only one of the factors that affect rates but says it strongly correlates with a person’s likelihood of filing an insurance claim.
Removing data makes risk models less accurate and would mean price increases for some people because they’d be subsidizing other drivers, says Michael Barry, spokesman for the Insurance Information Institute, a nonprofit funded by the insurance industry.
Dave Snyder, vice president of the American Property Casualty Insurance Association, says including credit when assessing risk helps create “fairer insurance rates overall because they are a more accurate prediction of future losses.”
The auto insurance industry says removing factors like credit history from the calculus in determining car insurance rates would make it more difficult to accurately predict drivers’ risk.
AP
A bill introduced in Springfield by Guzzardi would require auto insurers to get prior state approval for rate hikes and ban “excessive” increases. It also would ban using credit history, gender, marital status, age, occupation, schooling, home ownership, wealth or past insurance company relationships in setting rates.
The use of race, religion or ethnicity already is banned in deciding how much people will have to pay for car insurance.
For now, one way consumers can help keep car insurance rates down is agreeing to allow their insurer to use device- or app-based data collection to assess their driving habits. The programs — which include Progressive’s “Snapshot” and State Farm’s “Drive Safe & Save” — can bring down premiums for good drivers — provided that they are willing to give up their privacy.
Consumers also can benefit from shopping around.
Tere Lopez, a decades-long State Farm customer who lives on the Southwest Side, says she finally got fed up when her family’s car insurance bill jumped by nearly 75% between the rate increases and discounts that were removed. She switched to another company and was able to get her rate back down.
“I just can’t believe that auto insurance does not get regulated,” Lopez says. “I owe whatever they decide.”
READ ‘CAR INSURANCE ROULETTE’ INVESTIGATION
Click here to read Sun-Times Watchdogs reporter Stephanie Zimmermann’s investigation “Car insurance roulette: You could pay more because you’re a woman regardless of driving record.”