Unlike the states of California, Georgia, Hawaii, Massachusetts, Michigan, New York, and Vermont, Pennsylvania allows car insurance companies to base their premiums on education levels and credit scores.
On average, the more schooling one could afford results in a lower insurance rate. Two drivers with the same zip codes, same car, same driving record, and even the same age, can pay different amounts if they have different levels of education.
And it’s not just Pennsylvania; it’s every state that fails to prohibit insurance companies from basing rates on education.
The three largest auto insurance companies base premiums on education levels. Liberty Mutual charges 6.3% more, Progressive, 12.9% and Geico charges 16.4% to drivers without college degrees.
While it would be illegal for car insurance companies to set premiums based on race, setting rates on education levels creates a racial disparity. In 2019, 40 percent of white people 25 and older had at least a bachelor’s degree, compared with 26 percent of African-Americans and 19 percent of Latinos. The effect of basing rates on education is to set rates higher for minorities.
Another factor that plays into car insurance rates is your credit score.
Drivers who have poor driving records but good credit can be charged less that people who have good driving records but bad credt.
According to recent studies, a person with good credit, on average, pays $1088 for car insurance in Pennsylvania annually. Conversely, a person with poor credit pays $2258, over $1000 more per year.
But here’s the shocker: a person with good credit who has been convicted of driving while intoxicated pays, on average, $365 less than a person with a good driving record and bad credit.
Much like charging based on education level, charging based on credit scores has a racial effect.
As there is a direct correlation between race and credit scores. Intended or not, the current rating system forces people of color to pay more.
Because the State of Pennsylvania does not require transparency in rate setting, it is impossible for consumers to know how an insurance company decides what to charge. And if they are using education levels and credit scores to discriminate.
But is there any connection between your education and your driving? Between your credit score and your driving? Do you become a worse driver if you have to take a leave of absence from college? Does having a baby, which often lowers one’s credit score, make one a worse driver?
Why then does the State of Pennsylvania allow insurance companies to base premiums on education levels and credit scores when the results are unfair and unjust? And when other states have outlawed the practice? We called the Pennsylvania Insurance Commissioner’s press person to ask just that. And, no surprise they have yet to return the call.
And what can a consumer do? Three things:
If you are shopping for car insurance, ask if the company uses education levels and credit scores to set rates. Some companies like the nonprofit CURE insurance doesn’t use education levels or credit scores to set premiums.
Ask your state representative why they allow insurance companies to use education and credit scores for rate setting when its clearly discriminatory.
If someone running for office asks for your vote, ask them if they support stopping car insurance companies from discriminating.
For more information, be sure to watch our show this Wednesday.