Even Good Drivers May Be Hampered by Stigma of High-Risk Insurance

Good drivers covered by high-risk automobile insurers may find it hard to overcome that stigma when seeking new coverage from a standard insurer, a new analysis suggests.

Drivers who switch from a high-risk or “nonstandard” auto insurer to a large standard insurer may be quoted higher rates, even if they have safe driving records, according to the analysis by the Consumer Federation of America.

Three major mainstream insurers often quote such drivers significantly higher premiums, compared with quotes for drivers who were previously insured by large standard insurers, the analysis found.

The practice may particularly harm drivers in low- and moderate-income communities, making it difficult for them to find affordable insurance rates, said Douglas Heller, an insurance consultant who conducted the study for the federation. Often, he said, drivers in low-income or underserved areas have few options other than nonstandard insurers, even if they themselves have clean driving records. But once they are covered by nonstandard policies, they may be penalized if they try to move to mainstream coverage, he said.

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For the analysis, Mr. Heller and an associate tested whether quotes in 20 cities from seven large insurers differed depending on whether the customer seeking the quote was switching from a smaller nonstandard insurer. The researchers sought quotes for a hypothetical female driver with a perfect driving record; first, they said her prior coverage was with a major insurer (State Farm), then they said her coverage was with a nonstandard company.

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In a majority of cities where quotes were available, three major companies — Allstate, Farmers and American Family — used a driver’s previous insurer as a factor in determining the new premium quoted, the study found.

In those cities, Allstate quoted a rate that was 15 percent more on average for a good driver who had previously been covered by high-risk carriers like Safe Auto Insurance and Equity Insurance, compared with State Farm.

Farmers and American Family both charged 9 percent more on average for prior coverage through nonstandard insurers, compared with State Farm.

In one example, the federation found that Allstate quoted a driver in Queens an annual premium of nearly $4,200 when the prior insurer was State Farm. But Allstate quoted the driver more than $5,000 when the prior insurer was one of two nonstandard carriers.

“If one’s driving experience shows that he or she is low-risk,” Mr. Heller said, “then it does not make sense to use the fact that she was previously insured with a nonstandard company against her.”

The federation did not have data on how often drivers switch.

The analysis also found that practices varied by insurer and by market. Allstate raised rates on some customers coming from nonstandard insurers in 12 cities, but it actually lowered rates in three cities (Pittsburgh, Seattle and Tampa, Fla.).

In some cases, the impact was highly localized; Geico quoted rates as much as 72 percent higher in Tampa for drivers who previously had coverage through a nonstandard carrier, but did not use such information to price policies in any other city tested. (Geico declined to comment.)

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Three large companies — State Farm, Progressive and Liberty Mutual — did not increase rates at all in relation to drivers’ prior insurance companies, the study found.

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Allstate’s pricing “has been and continues to be determined by risk and costs,” said Justin Herndon, a company spokesman, adding, “Insurance prices are risk-based so that lower-risk drivers pay less than higher-risk drivers.” Allstate does not consider factors like income or race when setting insurance rates, he said.

Linda Wagener, a spokeswoman for American Family, said in an email that a driver’s prior insurance from a nonstandard carrier was “one of many factors” used in determining auto premiums. Data show that customers moving from a nonstandard policy have a higher likelihood of future losses than those who come from a standard policy, she said. “As a result,” she said, “their rates are different, to reflect the different levels of risk.”

Farmers did not respond to a request for comment.

Nonstandard insurers sell about $7.5 billion in auto insurance in the United States, representing about 7 percent of the auto insurance market, according to the federation.

David Snyder, vice president for policy development and research with the Property Casualty Insurers Association of America, said the federation’s analysis showed that insurers use a “wide diversity” of practices when considering a driver’s prior coverage, suggesting a competitive market. “It shows the companies are not all doing it the same way,” he said.

The report is the latest in a series of analyses by the federation, highlighting ways in which lower- and moderate-income consumers may be affected by the use of various nondriving-related criteria to set auto insurance rates.

Here are some questions and answers about auto insurance:

How can I find the lowest premium when switching from a nonstandard auto insurer?

Because the use of prior-insurer coverage varies in setting rates, it makes sense to obtain quotes from several insurers, Mr. Heller said. It’s now easy to obtain quotes from companies online, but he advises calling two or three local agents as well.

Are there other costs, besides premiums, that I should consider?

Make sure to ask about fees, not just premiums, Mr. Heller said. Particularly with nonstandard insurers, there are often “policy fees” of $30 to $50 to buy coverage, and extra fees if you pay in installments or add an additional car to the policy later. After getting a quote, he said, “make sure you know all the hidden costs before you decide which company is giving you the best price.”

Do all states permit insurers to consider nondriving-related criteria to be used in setting auto rates?

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Some states bar the use of credit history, or of an applicant’s occupation and educational level, in setting rates. Gov. Andrew Cuomo last month proposed banning the use of education and occupation in setting rates in New York, unless insurers can provide proof to the state’s Department of Financial Services that the criteria do not result in rates that are “unfairly discriminatory.” The proposal is subject to a 45-day comment period.

“Good drivers shouldn’t be penalized with higher premiums just because they have a lower-paying job or may not have gone to college,” said Chuck Bell, a policy analyst for Consumers Union, which supports the proposal.

The change, however, could have negative consequences for some drivers, Mr. Snyder said. For instance, it might prevent insurers from offering popular “good driver” discounts to certain people based on occupation, as they often do with teachers.

Email: yourmoneyadviser@nytimes.com

A version of this article appears in print on June 3, 2017, on Page B4 of the New York edition with the headline: Even Good Drivers May Be Hampered by Stigma of High-Risk Insurance. Order Reprints| Today’s Paper|Subscribe

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