Auto insurers are effectively gouging the working class, the Consumer Federation of America is charging.
The average blue collar worker pays $681 more a year for auto insurance than a white collar worker, a market analysis conducted by the Federation found. People with indicators of high social economic status paid $1,140 a year for car insurance, those with indicators of low social economic status paid $1,825 a year.
The Federation found that such factors as having just a high school diploma, or renting a home; were more likely to lead to higher rates than actual driving records. Executives were charged less than a woman who worked as a bank teller, and a male factory worker, even though the driving records were identifical.
How Insurers Profit from the Working Class
Almost all the major insurers seem to engage in this practice, a New York Times article on the analysis found. Some highlights of the gouging include:
- Berkshire Hathaway’s (NYSE: BRK.B) GEICO charged the low economic status drivers 92% more.
- Progressive (NYSE: PGR) charged the lower status drivers 80% more.
- Allstate (NYSE: ALL) charged the lower-class drivers $915 more a year.
- Farmers charged the lower income drivers $900 more a year more.
- State Farm charged lower income drivers 13% a year or $217 more each year.
- Geography does not seem to matter; working folk in Queens, New York, Jacksonville, Florida, Boston, Houston, Jersey City and Minneapolis all paid at least $700 more a year for insurance.
This study seems to verify a contention I have long made that auto insurance is based on a wide variety of factors that have little or nothing to do with driving. There is no evidence that renting or having a high school diploma makes a person a better driver.
The most likely cause of this class based discrepancy is that lower income people are less likely to shop around and more likely to accept what the auto insurance company gives them. Another might be that lower-income people are more likely to file lawsuits or insurance claims because they have no other way to pay for accident damage. A more affluent person might be more willing to cover minor damage out of pocket or with a credit card.
Another problem is that lower-income people are often automatically assigned to the insurer’s high-risk division. High-risk reads higher profit for the insurers. It also sounds as if the working class is effectively subsidizing insurance for the upper class. The factory worker; in his broken-down 15-year old Chevy, is paying to insure the investment banker’s new Tesla.
How to Avoid Being Gouged on Auto Insurance
This horrendous practice demonstrates how America’s new class system works. It is okay to gouge the working class because they will not fight back. Just imagine what would happen if an insurer tried labeling African Americans or gays a “higher-risk;” and charging them higher rates. There would be protests, and organized political action, and state legislators would be rushing back to the capitol to pass laws banning the practice.
The Consumer Federation also found that all working people can do to beat these high insurance rates is to shop around and do a lot of research. Being willing to visit several different websites; and examine a wide variety of quotes, can sometimes lead to lower premiums.
Another option working people should consider is to look for smaller and less known insurers which are willing to charge lower rates. Discounters including Walmart can sometimes provide a better rate as well. These can be connected directly online or through insurance brokers. The bottom line; is do not accept the first premium the company offers you, shop around and look for a better deal.