‘Appalling’ answers to Troubleshooters investigation of auto insurance rate disparities

‘Appalling’ answers to Troubleshooters investigation of auto insurance rate disparities
Published: Sep. 7, 2023 at 4:50 PM EDT
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LOUISVILLE, Ky. (WAVE) - When the WAVE Troubleshooters discovered auto insurance rates were more than double for people living in the poorest zip codes of Louisville while driving records were the same, no one could answer why.

”It is a form of redlining in my opinion,” insurance agent Denise Bentley said.

”It is an impossible situation,” attorney Sam Aguiar said. “And it’s highway robbery.”

The Consumer Federation of America saw our report and promised us some answers because they were embarking on a deep dive into the issue by purchasing the pricing data insurance companies were using.

”We started doing research and found that auto insurance companies were using a whole bunch of non-driving related factors to unfairly charge people higher premiums,” Consumer Federation of America research associate Michael DeLong said. “And one of the biggest factors was credit information in the form of credit scores.”

In analyzing people with clean driving records they found those with “fair credit pay premiums that are 49% higher than the premiums paid by consumers with excellent credit. Consumers with poor credit pay 115% more than consumers with excellent credit and 44% more than those with fair credit.”

Nationally, for people deemed safe drivers, those with excellent credit paid $470 a year. Fair credit paid $701. Poor credit paid $1,012.

In Kentucky, the differences were worse. Consumers with excellent credit paid $555. Fair credit paid $916. Poor credit paid $1,451. That’s almost triple what excellent credit consumers pay.

”What in the world does credit rating have to do with auto insurance rates?” WAVE News Troubleshooter John Boel asked DeLong.

”It doesn’t,” he said. “Your auto insurance premium should be based on your driving record, not your credit score or any other factor. The auto insurance companies claim, without offering much evidence, that credit information is linked to how risky someone is to insure.”

Consumer Reports dove into the issue as well and found that in Kentucky full coverage good drivers with poor credit paid almost $1,000 a year more than drivers with a DUI and excellent credit.

”How can anyone explain that away?” Boel asked DeLong.

”They can’t,” he said. “We think, frankly, that’s appalling. We think someone who is a drunk driver is a bigger risk than someone who has poor credit. We don’t see how this can be justified.”

Median credit scores in 2021 were 727 for white communities, 667 for Hispanic communities, and 627 for Black communities.

”So what this effectively means is that even if there’s no official or open racism, auto insurance companies charge people more based on their credit scores,” DeLong said. “That disproportionately hurts Black and Latino consumers.”

”Why should my credit affect my insurance for my car?” Sherlena Watkins said. “I already get my credit report ran to finance my car. I get that. But my insurance company is not a creditor. Why do they need to know my credit report?”

Watkins is a paralegal who lives in West Louisville. She said she has begged politicians to do something about the credit score impact on auto insurance because the ramifications are greater in her part of town.

”If you think about West Louisville, we don’t have a large employer really, so we work outside our community,” Watkins said. “You need an auto to go to these jobs that pay a fair wage. A lot are manufacturing jobs, and they’re far out for West Louisville. If I want that job, I got to go far out to work.”

That leads to dire decisions and consequences.

”When you’re on limited income and someone tells you your 2012 vehicle is going to cost you $400 a month to insure, sometimes that’s more than a car payment itself,” Bentley said. “So what happens is people say, ‘Forget it, I can’t afford it.’”

Three states, California, Hawaii and Massachusetts, prohibit credit information from being used in auto insurance pricing. The rest allow it. The CFA has been lobbying for change with state insurance departments.

”Some of the state insurance departments are, well, to put it frankly, pretty terrible,” DeLong said. “And when it comes to Kentucky, unfortunately we haven’t gotten responses from the insurance department.”

”It’s expensive to be poor,” Watkins said. “I don’t know if you know that. It’s super expensive to be poor. This report tells you that.”

WAVE News requested an interview with the Kentucky Department of Insurance weeks ago about this report. They had Boel email his questions. A long list of them was sent on Aug. 18 and followed up a week ago.

WAVE News received no answers as of the airing of this report. Boel also reached out to State Farm and the Kentucky Attorney General’s office. No response was received from them either.