The Shocking Secret About How Your Car Insurance Rate Gets Set
Most drivers probably know that if they get into an accident, their insurance rates are also likely to take a hit. But a new analysis by Consumer Reports finds that your car insurance premiums are increasingly based on factors such as your credit score that are unrelated to your driving record.
How well you drive may actually have little connection to how much you pay for insurance, the consumer group found.
In a two-year investigation, Consumer Reports analyzed more than 2 billion insurance price quotes obtained from more than 700 insurers across the country. It found that in many states a bad credit history will drive up your insurance premiums more than a drunk driving conviction.
“What we found is that behind the rate quotes is a pricing process that judges you less on driving habits and increasingly on socioeconomic factors,” the consumer organization reports. “These include your credit history, whether you use department-store or bank credit cards, and even your TV provider. Those measures are then used in confidential and often confounding scoring algorithms.”
Consumer Reports says it found that most car insurance companies use about 30 elements of the nearly 130 available in a credit report to construct their own secret score for policyholders, and that credit scores could have more of an impact on premiums than any other factor. Drivers with the best credit scores were charged up to $526 less than similar drivers with only “good” scores, depending on where they lived. Only three states — California, Hawaii and Massachusetts — prohibit insurers from factoring in credit scores when setting prices.
Drivers are legally required to carry car insurance, but the lack of pricing transparency makes it harder for them to make informed decisions about which policy to buy. “Because insurance companies are under no obligation to tell you what score they have cooked up for you, you have no idea whether you have a halo over your head or a bull’s-eye on your back for a price increase,” Consumer Reports says.
Industry advertising that promotes special discounts, such as for bundling home and car insurance, only muddles the purchasing process because those special deals don’t actually save people much money, Consumer Reports found.
The organization says it’s high time for truth in car insurance, and it’s asking consumers to sign a petition demanding that insurers -- and the state regulators who oversee them -- use price-setting practices that are tied to more meaningful factors, like driving records. It is also asking consumers to tweet the National Association of Insurance Commissioners, @NAIC_News, and tell them to “Price me by how I drive, not by who you think I am! #FixCarInsurance.”
For more information on state-by-state insurance premiums, or to sign the Consumer Reports petition, go to ConsumerReports.org/FixCarinsurance.
Top Reads From The Fiscal Times:
- Americans Are About to Get a Nice Fat Pay Raise
- How Millenials Could Damage the U.S. Economy
- The Pain the Job Numbers Don’t Show
Small Business Owners Say They’re Raising Worker Pay
A record percentage of small business owners say they are raising pay for their workers, according to the latest monthly jobs report from the National Federation of Independent Business, based on a survey of 10,000 of the group’s members. A seasonally adjusted net 35 percent of small businesses say they are increasing compensation. “They are increasing compensation at record levels and are continuing to hire,” NFIB President and CEO Juanita Duggan said in a statement accompanying the report. “Post tax reform, concerns about taxes and regulations are taking a backseat to their worries over filling open positions and finding qualified candidates.”
The US Is Running Short on More Than 200 Drugs
The U.S. is officially running short on 202 drugs, including some medical staples like epinephrine, morphine and saline solution. “The medications most vulnerable to running short have a few things in common: They are generic, high-volume, and low-margin for their makers—not the cutting-edge specialty drugs that pad pharmaceutical companies’ bottom lines,” Fortune’s Erika Fry reports. “Companies have little incentive to make the workhorse drugs we use most.” And much of the problem — “The situation is an emergency waiting to be a disaster,” one pharmacist says — can be tied to one company: Pfizer. Read the full story here.
Chart of the Day: Could You Handle a Sudden $400 Expense?
More Americans say they are living comfortably or at least “doing okay” financially, according to the Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2017. At the same time, four in 10 adults say that, if faced with an unexpected expense of $400, they would not be able to cover it or would cover it by selling something or borrowing money. That represents an improvement from 2013, when half of all adults said they would have trouble handling such an expense, but suggests that many Americans are still close to the edge when it comes to their personal finances.
Kevin Brady Introduces Welfare Reform Bill
The Tax Policy Center’s Daily Deduction reports that Rep. Kevin Brady (R-TX), chair of the House Ways and Means Committee on Friday introduced The Jobs and Opportunity with Benefits and Services (JOBS) for Success Act (H.R. 5861). “The bill would rename the Temporary Assistance for Needy Families (TANF) program and target benefits to the lowest-income households. Although the House GOP leadership promised to include an expansion of the Earned Income Tax Credit as part of an upcoming welfare reform bill, this measure does not appear to include any EITC provisions.” The committee will mark up the bill on Wednesday.