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Why State Farm and Allstate will charge you more for auto insurance if you have a poor credit score

New report show major auto insurers charging higher  prices to people who need insurance the most

State Farm, Allstate, credit score

Discrimination based upon credit scoring is alive and well.

Michigan lawmakers, are you listening?  While the insurance industry is pushing aggressively for changes to Michigan’s No Fault laws in 2014, the Consumer Federation of America has already identified a quick, easy and sure-fire way for you to lower auto insurance prices for all Michigan consumers.  The result will be a more fair and just way for consumers to obtain insurance, and at lower prices.

Here it is:

Prohibit Michigan’s auto insurance companies from “insurance credit scoring,” i.e., using consumers’ credit scores to determine how much to charge consumers for auto insurance.

For tens of thousands of people in Michigan with poor credit, or who just live in the “wrong” neighborhood, they could see immediate savings.

Research by the Consumer Federation of America (CFA) shows that two major auto insurance companies – State Farm and Allstate – charge drivers “with poor credit scores much higher prices [for auto insurance] than drivers with excellent scores,” according to a press release announcing the publication of CFA’s report, “The Use of Credit Scores by Auto Insurers: Adverse Impacts on Low- and Moderate-Income Drivers.”

For example, the CFA concluded:

  • State Farm’s auto insurance prices were on average 127% higher for consumers with “poor” credit scores as compared to the prices charged to consumers with “excellent” credit scores.
  • Allstate’s auto insurance prices were on average 39% higher for consumers with “poor” credit scores as compared to the prices charged to consumers with “excellent” credit scores.

Based on the findings from the CFA report, it’s clear that if Michigan chose to “ban insurer use of credit scores in pricing” since it is prima facie discriminatory (as many other states such as California, Massachusetts and Hawaii have done), this  would bring down auto insurance prices for all consumers.

This would be  great news for everyone shopping for auto insurance, and especially the working poor and middle class consumers with poor credit who are currently being discriminated against.  But it would also be outstanding news for all present and future Michigan auto accident victims, especially those who have suffered catastrophic injury, since the insurance industry is pushing hard right now to take away some of our most important legal protections under the Michigan No Fault law.

Imagine that. Michigan  politicians could  lower the price of auto insurance and save consumers money, and we could all  abandon their  crusade to dismantle Michigan’s No Fault auto insurance system, which the Insurance Institute of Michigan says provides auto accident victims with the “best auto insurance coverage in the country.”

Other ways to lower consumers’ auto insurance costs

Prohibiting auto insurance companies from “credit scoring” is not the only way to bring down auto insurance prices for consumers. Consider the following proposals:

Related information:

“8 things to know about how Michigan auto insurance companies can use your credit score”

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Blog Author Steven M. Gursten
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