Who Pays More for Car Insurance?

aaron_image1Yesterday I came across a startling report via personal finance guru, Jean Chatzky, talking about how education level and your employment status can factor into how much you will pay for auto insurance. Oftentimes, those with less education and “blue collar” jobs are paying more in insurance rates than others.

The report noted that “GEICO often charges a factory worker with a high school degree far higher annual premiums than a plant supervisor with a college degree – 45% more in Seattle ($870 vs. $599), 40% more in Hartford ($1299 vs. $926), 33% more in Oakland ($922 vs. $693), 23% more in Louisville ($2200 vs. $1791), 21% more in Chicago ($1013 vs. $840), and 20% more in Baltimore ($1971 vs. $1647).” (a perfect driving record were taken into account in each scenario). 

Pretty startling. But, the insurance companies are in the business of predicting who will be a liability to them and judging risk. Could it be they are assuming those who attend college or graduate school OR hold a higher position on the organization chart are more responsible and careful drivers than those who opted out of college or are holding lower-level positions? On the other hand, one might think the person lower on the totem pole (so to speak) would be driving a less-valued automobile than the person higher on the pole. Again, another assumption.

It's interesting to note the worst offenders of these biased practices:

  • Progressive
  • Liberty Mutual
  • Farmers

And those who don't take education or career levels into account when factoring premiums:

  • State Farm
  • Allstate
  • Nationwide
  • USAA
  • Travelers

It's certainly an unsettling issue and I'd be interested to hear your take on this. Is it wrong for insurance providers to be making such assumptions/or discriminations? And, would you think twice about doing business with those who practice biased-based pricing?

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  1. I think it’s all about knowing the rules on the road. I think it actually depends. There are people who are good drivers, regardless if they are educated or not. I think it all boils down to knowing the right information when it comes to driving. It’s being properly educated on the rules of driving.

  2. It’s obvious that based on millions of accidents over decades that those insurance companies have concluded that the more someone is educated, the more responsible they are and they are less likely to be involved in accidents.

    That’s not to say that there may be lots of people who never made it beyond 3rd grade who have never been in an accident…it just proves that there are rare exceptions to the correlation they discovered

  3. I’ve recently came across a post regarding people without college degrees pay higher premiums than those with college degrees. I think it’s unfair. I think auto insurance costs should be be based on the degree of education a person has attained. It should all be fair and square. It doesn’t mean people with college degrees drive more safely and smarter on the road.

  4. Alicia you obviously don’t know whats going on or you, I suspect are an insurance agent who wants to protect and proper gate the insurance industry here. The Liberal government here in Ontario wanted to put 15% discount on our car insurance here, but instead the insurance companies said oh yeah will just put a 30 % increase in everyone’s rates! The province froze!! since then there has been NO decrease in our rates just increases I just got a bill to prove this

  5. I agree with Elizabeth: if they’ve got the stats to prove their theories, then yes, they do have a responsibility to charge higher rates. No stats though, no way. Great post, Aaron!

  6. Looks like Frank found the decrease in my premium (35%). While I haven’t seen or witnessed this trend first hand, I have seen where are opt-in group discounts for Alum of post-secondary schooling – I am also in Canada. Perhaps the insurance company is willing to offer these group discounts because of similar risk statistics. Alternatively, it could just be the model I originally thought it was: lots more business at a lower rate is still more money than a few clients at full price.

  7. interesting these are all northern states , what about the southern states, corporate insurance is doing whatever its wants with No independent or government oversight, I am in Canada we just just had a 30% increase added to our car insurance here

  8. I couldn’t fault them if they could back up their reasoning with reproducible and reliable statistics. Let’s face it theirs is a business of taking into consideration the statistical probability of events occurring in a population. If they don’t have the stats to back it up and the decision is based on assumption alone then I would have a problem.

    • @Elizabeth – I agree with you. This is the nature of their business and I’m sure they have stats that would confirm some of their pricing.
      @Frank – Really, a 30% increase? And, you didn’t move or anything?

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