Farmers Insurance, Allstate, State Farm, Progressive & GEICO charge between 40% and 102% more for car insurance to drivers with bad credit
When it comes to car insurance pricing, a bad credit score is going to cost you more.
Two recent studies drive home this point. I should point out that these are just the most recent studies showing how unfair it is for car insurance companies to use credit scores to hammer drivers with safe driving histories but poor credit scores. For readers of this auto lawyers blog, this is a point I’ve made repeatedly in the past.
The two most recent studies on car insurance and credit scoring conclude:
- In its May 24, 2017, study, “Drivers With Poor Credit Pay Higher Insurance Rates in Most States,” NerdWallet found that Michigan drivers “with poor credit” pay $1,969 more per year than drivers “with good credit.”
- In its July 13, 2017, study, “2017 Auto Insurance & Credit Score Report: Does Credit Affect Premiums?,” WalletHub found that “[p]eople with no credit pay 65% more for car insurance than people with excellent credit, on average,” and Michigan drivers “with no credit” pay car insurance premiums that are 105% more than drivers “with excellent credit.”
Credit scoring is illegal in many states. Why do we allow car insurance companies to use credit scores in Michigan?
The high price of auto No-Fault insurance has been in the news, especially in cities like Detroit.
But practices like credit scoring and redlining also contribute substantially to the high price of auto No-Fault insurance.
Michigan’s “highly profitable” car insurance companies charge more to drivers and consumers in Detroit and Flint and other cities in Michigan.
Detroit Mayor Mike Duggan has almost entirely ignored how much credit scoring and redlining drives up the price of car insurance and harms people in Detroit. Inexplicably, Mayor Duggan would rather focus on badly flawed ideas like D-Insurance. Make no mistake, D-Insurance will harm Detroiters who need auto No-Fault the most. Never one to admit a mistake, Mayor Duggan is now doubling down and spending his time and political capital on expanding the horrible idea of D-Insurance statewide.
Want to lower car insurance rates in Detroit? Start with credit scoring
We — and especially Michigan lawmakers — know at least one of the main reasons why rates are so high, yet the politicians stubbornly persist in their refusal to take any action to help relieve the financial burden for consumers.
The fact that insurers are using otherwise safe drivers’ credit scores to discriminate in their price-setting process should come as no surprise.
I’ve tried to do my part to bring much-needed attention to this important issue.
I’ve blogged about how credit scores punish Detroit drivers with higher car insurance rates and how consumers with bad credit could pay as much as 115% more for car insurance.
How does MI compare on using a driver’s credit score to set car insurance rates?
NerdWallet’s study reported the following findings:
- Michigan drivers “with poor credit” pay $1,969 more per year for car insurance than drivers “with good credit.”
- Among the 47 states and District of Columbia which allows insurers to use drivers’ credit scores in the rate-setting process, “Michigan had the largest rate disparity between motorists with good and poor credit” — ranking #1 for the biggest “[d]ifference in rates between drivers with good and bad credit.”
Significantly, only California, Hawaii and Massachusetts prohibit auto insurance companies from “us[ing] … people’s credit ratings in car insurance rates.”
What car insurance companies are using a driver’s credit score to set rate?
Significantly, as noted above, the WalletHub study determined that “[d]rivers with no credit pay at least twice as much in … MI,” i.e., a 105% “premium fluctuation” between “people with no credit” and “those with excellent credit …”
Additionally, WalletHub calculated that, in the states and D.C. where credit scores can be used by insurers in the rate-setting process, Farmers Insurance had the largest “average premium fluctuation” between what was charged to drivers with “excellent credit” and to drivers with “no credit history.”
Here’s how Farmers compared to other insurers in WalletHub’s analysis of the “average difference between premiums” by “five of the country’s largest auto insurance companies”:
- Farmers Insurance: “Average Difference Between Premiums: 102%”
- Allstate: “Average Difference Between Premiums: 79%”
- State Farm: “Average Difference Between Premiums: 58%”
- Progressive: “Average Difference Between Premiums: 55%”
- GEICO: “Average Difference Between Premiums: 40%”