A car chase in June on I-75 in Cobb County ended after 10 crashes. The series of crashes happened as state troopers tried to stop a car that was reported stolen. Georgia has seen an increase in vehicle accidents in recent years, contributing to higher insurance costs. JOHN SPINK/JSPINK@AJC.COM.
Photo: John Spink/The Atlanta Journal-Constitution
Photo: John Spink/The Atlanta Journal-Constitution

The mysteries of auto insurance pricing

With auto insurance costs spiking, Georgia drivers looking for a better deal may be focused on avoiding accidents and speeding tickets.

A clean driving history, after all, is what insurers are looking for – right?

These days, not so much. Insurers mine all sorts of personal information that has a huge influence on how much individuals pay for auto coverage.

Consider this: A bad credit score can add more to an auto insurance bill than a drunken-driving conviction.

While credit history is a giant factor in the price of auto insurance, not owning a home, and having a lower-paying job and no college degree can increase the cost, too. Even becoming a widow can jack up your bill, said J. Robert Hunter, the Consumer Federation of America’s director of insurance.

“If you have all of those things against you, your rate can literally go up as much as five times,” Hunter said.

The use of big data in pricing can be especially costly for many low-income drivers, even if they’ve never had an accident or a ticket. Hunter said insurance regulators should rein in the use of “socio-economic” factors in pricing since state laws require people to have insurance if they want to drive. Hunter said that’s especially important in a state like Georgia, which last year led the nation for increases in auto insurance premiums.

Georgia’s top insurance regulator, however, is a strong supporter of using data points to set the cost of coverage, even if it does hit the poorest drivers especially hard.

“If you have a predictor that is going to show who is less likely to have an accident,” said Georgia Insurance Commissioner Ralph Hudgens, “why would you want to tie [the insurance company’s] hands?”

Insurers view credit information and other personal factors like a crystal ball. Sure, they know what drivers have done in the past. But by shuffling a customer’s debt and bill-paying records through a complicated computer program, insurers found they could accurately predict who is most likely to file an insurance claim in the future.

In 2003, the Georgia General Assembly made it legal for insurers to use credit information when pricing auto and homeowners insurance. Most other states have legalized the practice, too. It’s one of a dozen or more factors used in pricing that include the traditional factors most consumers know about: make and model of car, zip code, age, driving history, marital status.

A credit-based “insurance score” is used by insurers for pricing because, like other factors, it’s highly predictive, said Robert Hartwig, co-director of the Center for Risk and Uncertainty Management at the University of South Carolina and former president of the industry’s Insurance Information Institute.

“Let me go way, way back to perhaps one of the first rating factors ever used — gender,” Hartwig said. “No one doubts males are worse drivers than females in every respect.”

Studies have shown men crash cars more often and are more costly to insurers. So, they pay more for a policy. Insurers don’t try to figure out why men are more likely to crash in order to justify charging them more, Hartwig said. And the same is true for charging people with poor credit histories more. It’s clearly predictive, he said, so in most states it’s used even though there’s no clear explanation.

In Georgia, for example, a driver with a clean driving record but a poor credit history can expect to pay nearly double the bill of someone with the same profile who has excellent credit, according to an exhaustive study published in 2015 by Consumer Reports. While the poor credit score tacked $1,100 on to the cost of the average policy for a single, adult driver, a drunken-driving conviction added on less: about $800 extra in Georgia, the study found.

“People aren’t aware of how much it affects their premiums,” said Jeff Blyskal, a senior editor at Consumers Reports.

Blyskal said insurers claim the use of credit in pricing is good for consumers. If they have good scores, they pay less, which better reflects their actual risk to the company. Even so, Blyskal said, insurers do not emphasize their use of credit in their widespread advertising.

Blyskal said that’s because most consumers aren’t comfortable with it. They want to be priced based on whether they had an accident or got a traffic ticket. “They can understand that,” Blyskal said. “They can’t understand the credit score component of this.”

The Consumer Reports study found that the added cost of a poor credit history varies by state — and by insurer. Poor credit histories added $2,000 or more to the annual cost of insurance in some states, including Florida, Texas and South Carolina, according to the study.

Even though a tie has been established, the practice is still controversial.

“Welcome to a little known part of the insurance business: National Nannies of Public Morals,” said Tim Ryles, a former Georgia Insurance Commissioner.

Ryles said he tried to outlaw the use of credit scores in insurance pricing, which he said the industry has taken too far. “If you bought your car on a day when the moon was full and insurers find a statistical correlation between that factor and accident rates, you will probably be charged a higher premium,” Ryles said, “And some [darn] fool regulator will okay the practice.”

Georgia is more restrictive than other states in terms of what it allows insurers to include in the scoring models, said Steve Manders, director of insurance product review in Hudgens’ department. Manders said one insurer recently proposed factoring in as a predictive factor to be used in pricing how close someone lived to a museum.

“We did not allow that,” Manders said.

Hunter, of the Consumer Federation of America, said the use of occupation and education data by some insurers can also make a huge difference in how much a consumer will pay.

The consumer organization collected insurance quotes from across the nation and found that drivers with middle income jobs and education levels routinely pay more than driver with the highest education levels and lucrative jobs, even if those upper-income customers had a worse driving record.

“Insurance companies do not want poor people,” Hunter said. That’s because they don’t buy the most expensive policies, he said, and are less likely to buy more than one insurance product.

Insurers say they aren’t picking on anyone. They say they simply charge widows, people with poor credit and other groups more because the factors allow them to charge the right rate for the risk that customer presents to the company.

That pricing quest, based on risk, is on the verge of becoming even more individualized in a way that might revolutionize pricing once again, according to Hartwig, the insurance professor.

New technology is allowing insurers to track whether a driver is braking hard, speeding for long periods or engaging in other types of risky driving. In the future that customer could be charged more than someone who doesn’t push the pedal to the metal.

“Over the long run you will actually see many of these factors — including credit — be de-emphasized in favor of factors that rely more heavily on your driving behavoir exclusively,” Hartwig said.

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