Are you a homeowner? It could determine how much you pay for auto insurance

FORT MYERS, Fla. – What does owning a home have to do with your driving record?

One group found that auto insurers are using home ownership status to determine auto insurance rates.

“What you see is premium increases in auto insurance that are not at all tied to whether or not you’re going to cause accidents,” explained consumer advocate Douglas Heller. “Insurance companies have put price tags on people’s, on people’s foreheads and if you happen to be a renter, you’re going to pay more. If you own a home you may be lucky from the insurance company’s perspective but that’s simply not fair.”

Owners vs. renters

Heller, who works with the Consumer Federation of America, recently released a nationwide study that determined renters usually paid more for their auto insurance policies.

“In all of those companies except for one, Geico, insurance companies were asking you about your home ownership status and more often than not, dramatically more often than not, they were charging you more if you were a renter instead of a homeowner,” explained Heller. “And that is across the country with one exception that we noted, which is in California, because in California the law prohibits insurance companies from asking you questions about whether you are a homeowner or a renter.”

The study used the same driver profile when shopping for rates: a Florida woman in her thirties with a fair credit score and good driving record. The woman was a renter in one scenario and a home owner in another.

On average, the Consumer Federation of America found that the renter paid $200 more than the homeowner.

“This is so out of control, what’s happening, because big data allows insurance companies to to come up with all sorts of pricing strategies,” Heller said. “The problem is, it’s not like we’re talking about buying some, some whimsical gift. We’re talking about the auto insurance required by our state and that means we have to have some constraints on this industry which makes billions of dollars of a product we’re forced to buy.”

Such practices are not surprising, said consumer lawyer Carmen Dellutri.

“I’m actually surprised that this information isn’t coming out before [the study],” he said. “Because in my business, I see how people get treated differently because of credit scores, or because of driving history, because of driving claims, but that’s risk based. When you look at it this way, so if I’m a non-homeowner, I have to pay more because I have decided not to buy a house? In one of the most probably volatile housing markets in the nation? That doesn’t seem fair.”

Hardest hit

Basing auto insurance prices on whether residents rent or own their homes is hitting the people who cannot afford it the hardest, both men said.

“Let’s say for example there are people making $30, $40, $50,000 a year, but they can’t buy a $250,000 house in a neighborhood where they want their kids to go to school,” explained Dellutri. “So they decide alright, maybe for a couple of years we’ll just rent. But then they’re being penalized for being renters because now, we’re going to hit you with higher auto insurance premiums regardless of if you’re a good driver or a bad driver.”

Such practices force low-income drivers to question whether they could afford auto insurance, Heller said.

“When lower income Americans are being over charged by $300, $500, $700 a year, for many of them they’re put in that really tough position of thinking can I even afford auto insurance?” explained Heller. “And when people get on the road without insurance, that affects everyone of us. When you require people to buy a product you’ve got to make darn sure that it’s affordable to them and its within reason.”

Consumer protection

There are things drivers can do to protect yourself, including shopping around every year for the best rates.

Heller pointed out that there were some big swings in price between companies in the same city.

Secondly, Heller suggested that those upset by this practice should contact their state lawmakers and state insurance regulators.

A May 2015 memo by the state insurance commissioner banned the use of “price optimization.”

“(It’s) techno speak for mining personal data about shopping habits that range from one, how often you shop for auto insurance to how many bananas and apples you buy at the store that they can glean from your club cards,” Heller said. “The kind of data mining that is happening, in America is really staggering. And the auto insurance companies realized they can use it to. They look at things like what your net worth is.”

The state Insurance Commissioner’s Office said using home ownership to determine auto insurance rates would not be considered price optimization, but gave this example:

 

“…some insurers have utilized retention models in other states to determine how much the insurer should change its rates in order to maximize its profits.

For example:
Territory A and B both have indicated rate changes of +25%. The insurer determines that:

·       In Territory A, the insureds would likely stay with the insurer even if the rate was increased by 25%, and
·       In Territory B, most insureds would leave if the rate increased 10% or more.

Due to the above, the insurer selects a rate change of +25% for Territory A and +9.9% for Territory B.”