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Study shows unfair car insurance pricing among MI companies

August 14, 2017 by Steven M. Gursten

MI car insurance companies use non-driving related factors such as job, education and home-owning status to charge different prices to equally safe drivers

Car insurance pricing

Why should a driver with a good driving record be subjected to higher car insurance pricing for Michigan No-Fault car insurance just because he’s not a lawyer or investment banker and he doesn’t own his home?

He shouldn’t!

But that’s not how things work with Michigan auto insurance companies.

In fact, the harsh reality is that “one’s socioeconomic status can lead to significant increases in auto insurance premiums,” according to an insightful, thoroughly researched study by the Coalition Protecting Auto No-Fault (CPAN), which was released to the public Aug. 1, 2017.

As a result of its study, “Comparing Socioeconomic Status and Auto Insurance Rates in Michigan,” CPAN concluded the following about “how non-driving related factors influence car insurance rates” in Michigan:

“Although factors such as job title and whether the driver owns a home are not meaningfully related to a motorist’s risk of loss, Michigan drivers who have working class jobs, do not have a college degree, or rent rather than own their home pay an average of $233 per year more for [basic] auto insurance compared to their white collar peers … On a statewide basis, this represents a 12 percent socioeconomic status penalty.”

“The pricing practices of several major insurers revealed by this research are unfair to the Michigan drivers with clean driving records whose auto premiums include surcharges due to their job title, level of schooling, or homeownership status.”

How serious is insurance code’s rule against ‘unfairly discriminatory’ car insurance pricing?

To me as an insurance attorney and to the clients I help and to the consumers who read my Auto Law blog, this is an important study — one that the Insurance Commissioner should have done.

Not only does it highlight the unfair car insurance pricing practices of Michigan auto insurers, but it begs the question about seriousness of the Insurance Code’s prohibition on insurers charging “unfairly discriminatory” auto insurance prices (see MCL 500.2109(1)(a)).

If using job, education and homeowner status to charge different insurance prices to two equally safe, responsible drivers isn’t discrimination, then what is?

Home-owning lawyers receive lower car insurance pricing than out-of-work renters? What?!?

Based on online price quotes from six Michigan No-Fault auto insurance companies (which “represent more than half of Michigan’s auto insurance market”) in 8 Michigan cities, the CPAN study found that the “average annual premium based on job title, education & homeownership status” was lowest for:

A lawyer with a Juris Doctor degree who owns his own home.

In contrast, the CPAN study found that the highest “average annual premium” based on socioeconomic status was:

A laid-off worker with no high school diploma and who rents his home.

In between, in descending order of lowest to highest “average annual premium” are:

  • An investment banker with an MBA who owns his home.
  • A factory foreman who has a college degree and who rents his home.
  • A factory worker with a high school diploma who rents his home.

So who, according to the CPAN study, are the worst abusers of using non-driving related factors in setting car insurance prices? I’ll discuss the answer to that question in tomorrow’s blog post.

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