Study: Poor Pay More for Car Insurance

It simply does not pay to be poor in these United States; the least affluent Americans pay more for everything, including car insurance. A survey by the Consumer Federation of America, or CFA, found that the nation’s five largest auto insurance companies do not make a basic vehicle policy that costs less than $500 a year available in 484 of America’s lowest income zip codes.

CFA signaled out GEICO, State Farm, Farmers, Allstate, and Progressive and noted that in 24 large urban centers, there was at least one low income zip code where premiums exceeded $500 a year. In nine metro areas—Detroit, Miami/Fort Lauderdale, the Twin Cities, Tampa/St. Petersburg, Baltimore, Orlando, Jacksonville, Hartford, and New Orleans—yearly premiums exceeded $500 in all zip codes. Those cities include some of the nation’s poorest neighborhoods.

Okay, to be fair, we must point out that some of the factors that determine premiums, such as state laws, are basically beyond the control of insurers. Michigan has the nation’s most expensive auto coverage because of its bizarre state insurance laws. Auto insurance is expensive in New Orleans because the political environment and state law in Louisiana make it real easy to sue insurers and win.


Other factors that drive up the cost of insurance include large numbers of uninsured drivers on the road, something made inevitable because poor people that cannot afford insurance may still need to drive. Cities like Detroit and Tampa have no inadequate public transit, making it impossible for the poor to reach things like work or the grocery store without a car. A working parent that needs to work to pay the rent and buy food will take the risk of driving without insurance to meet those basic needs.

Lack of health insurance also drives up auto premiums because in many cases the only means the poor will have to cover medical costs after an accident is to call a personal injury attorney. That means more lawsuits, more medical claims, and higher premiums for everybody.

The CFA seems to be demanding national regulation of insurance, which might be an answer. Some basic changes to auto insurance, such as abolishing no-fault coverage, which prevents insurers from charging drivers more after accidents, could help. States without no-fault coverage have lower insurance costs. Sadly enough, this step is not mentioned, nor does the CFA take note of areas with high rates of poverty, such as Cleveland and parts of upstate New York, that have very low car-insurance prices.

How to Reduce Auto Insurance Costs

There are some steps that people that live in areas with high premiums can take to reduce costs. A few of these steps include:

  • Shopping around for auto insurance. Go online, and use several different auto insurance research tools to look for a lower premium. Studies indicate that people that compare rates do pay less.


  •  Being willing to switch insurance companies. Insurers have a bad habit of charging those that do not shop around more. Yet they want your business, particularly if you have a good driving record, so they often offer deals for new customers.


  • Getting away from the Big Five; there are hundreds of insurance companies in America, many of which charge less. Try going with a smaller or less well known insurer. Some of these companies do not use criteria such as occupation or credit ratings when they write policies.


  • Negotiating with your insurance company. Call or chat with your insurance company directly; tell them the policy costs too much and you will have to switch. They might be willing to cut rates, particularly if you can show them a quote from a competitor with a lower price on it.


    • Installing a telemetric device on your car. Such devices use wireless technology to monitor your driving habits, which can enable an insurer to reduce your premium. A number of major insurers, including Progressive, offer this technology.

It is time that policymakers addressed high auto insurance rates. Legislatures need to take a hard look at laws that penalize the poor and drive up insurance costs for the rest of us. Cutting the cost of auto insurance would be of immense economic benefit to all Americans.