Lower-Income Families May Pay More for Auto Insurance

DETROIT (WWJ) – The Consumer Federation of America (CFA) released a study this week that shows low and moderate income people are limited in job opportunities because they may be forced to pay too much for mandatory auto insurance.

As WWJ’s Rob Sanford reports, auto insurers prices are based on a variety of factors, but the study’s authors argue that many of their methods put lower to moderate income families at a disadvantage.

For the large majority of low to moderate income households (LMI), automobile ownership greatly increases economic opportunities, particularly access to jobs. These households cannot legally own a car without purchasing auto insurance, whose premiums often exceed $700 and sometimes cost thousands of dollars.

In general, LMI car owners are disadvantaged by rate classification systems used by insurers. They pay higher premiums because insurers use rating factors, such as location of residence, occupation, education, and credit rating, which they claim are correlated with risk.

In large part because of high costs and disparate impacts, a significant minority of LMI drivers do not carry auto insurance and are driving illegally.

CFA President Stephen Brobeck said something has to be done.

“As a society, we must figure out a way for lower-income families to purchase affordable liability coverage so that they don’t face the choice between breaking the law and giving up access to job opportunities,” said Brobeck.

The study also showed that homeowners often pay less than those who don’t, while people in low paying occupations who have less education pay more.

For a full copy of CFA’s study “Lower-Income Households and the Auto Insurance Marketplace: Challenges and Opportunities,” visit www.consumerfed.org.


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