Auto Insurance

Car Insurance Companies Are Charging the Most Disadvantaged Drivers the Highest Prices

Car Insurance Companies Are Charging the Most Disadvantaged Drivers the Highest Prices

Unemployed renters with poor credit and without four-year college degrees are charged hundreds of dollars more per year for auto insurance on average than more socio-economically advantaged drivers.
A car with a damaged front-end.
A car with a damaged front-end. Source: Getty Images

ValuePenguin obtained tens of thousands of quotes for drivers across the country, discovering that insurance providers generally quote the highest premiums to some of the most socio-economically disadvantaged drivers.

A person's homeownership status, employment status, education level and credit all influence how much they pay for auto insurance. We gathered rates for unemployed drivers with poor credit who don’t own their homes and whose highest level of education was high school. ValuePenguin compared these rates with those of employed drivers with good credit who own their homes and have four-year college degrees.

The former set of drivers encountered higher prices per year than the latter in virtually all 50 states and the District of Columbia — $481 higher, per the average across states.

Key findings

  • In every state but California, socio-economically disadvantaged drivers are quoted much higher rates than other, more privileged drivers. On average across states, these drivers are charged $481 more per year than their counterparts.
  • Even in Hawaii and Massachusetts, where laws protect consumers from rate hikes based on poor credit, other non-driving considerations drive higher costs.
  • The largest disparity occurs in Michigan, where the cost of insurance is already expensive for most drivers. In Michigan, socio-economically disadvantaged drivers can see policies that are 662% more expensive than what others receive.
  • Price hikes are not just employed by small insurers. The largest companies in the U.S. charge disadvantaged drivers $436 more per year, on average.

Drivers in almost every state face higher rates if they lack socio-economic advantages

The pricing disparity we uncovered applies to the cost of minimum coverage policies, which only include the coverage that's required by state legislatures for drivers to legally operate their cars on public roads.

In virtually every state — plus the District of Columbia — disadvantaged drivers pay hundreds of dollars more per month on average compared to their counterparts. On average across every state, insurance providers charge these drivers $481 more per year than other drivers.

The disparity in premiums climbs the highest in Michigan. In Michigan, where coverage is notably already more expensive than elsewhere in the country, disadvantaged drivers pay $3,589 more per year on average than others. This amounts to an increase of 662% relative to the cost of car insurance for drivers who have socio-economically advantaged traits.

Nationally, the on_current="true" url="https://www.valuepenguin.com/low-income-auto-insurance"most disadvantaged drivers[/link face price increases equal to 75% of the premiums for employed drivers with good credit who own homes and have four-year college degrees. In 10 states, insurers implement price hikes of at least 100% of an advantaged driver's total premium. These states — in addition to Michigan — are Florida, Connecticut, Nevada, Maryland, Louisiana, Delaware, New York, Colorado and Arizona.

Even in states like Massachusetts and Hawaii, where there are consumer-protection laws that prohibit insurers from charging people more because they have poor credit, insurers still target disadvantaged drivers according to their education level, job status and homeownership status. In Massachusetts and Hawaii, consumers face surcharges of $675 and $113, respectively. Conversely, California's stringent consumer-protection laws make it the only state where the price of car insurance isn't higher for socio-economically disadvantaged drivers.

StateIncreasePremiums for advantaged driversPercent increase
US$481$64375%
Michigan$3,589$542662%
New York$1,191$1,033115%
Florida$1,180$499236%
Rhode Island$723$79591%
Delaware$716$614117%
Washington, D.C.$714$78291%
Arizona$675$678100%
Massachusetts$675$86878%
Minnesota$672$1,02466%
Kentucky$668$99067%
Missouri$609$64794%
Maryland$605$457132%
Connecticut$586$295199%
Nevada$526$379139%
Utah$515$56491%
Louisiana$511$415123%
New Jersey$507$54992%
Oregon$495$70770%
South Carolina$442$91848%
Nebraska$422$50284%
Illinois$417$89247%
Colorado$413$393105%
Texas$402$1,92421%
Wisconsin$399$62664%
Mississippi$380$66357%
Pennsylvania$371$61560%
West Virginia$370$45282%
North Dakota$360$45679%
Washington$343$47273%
Kansas$334$47570%
Georgia$322$44972%
New Hampshire$303$73741%
Maine$301$50660%
Arkansas$292$93031%
Ohio$291$92531%
Vermont$289$43167%
Iowa$275$51653%
Montana$272$77535%
Virginia$270$52352%
Indiana$270$99627%
Oklahoma$265$67139%
New Mexico$261$32780%
North Carolina$242$42457%
Tennessee$234$56042%
Idaho$231$98224%
South Dakota$211$49643%
Wyoming$200$46343%
Hawaii$113$49123%
Alabama$91$38724%
Alaska$15$5943%
California$0$4000%
This table is ordered according to the average dollar amount increase that disadvantaged drivers encounter.

The country's largest insurance providers all charge more to disadvantaged drivers than others

We investigated the change in the cost of auto insurance among the largest insurers in the country for drivers matching an economically disadvantaged profile. On average, the largest insurance providers charged these drivers $436 more than their counterparts.

Travelers imposed the largest price increase on these types of drivers, with an increase of $627 per year across states where its subsidiaries were among the 10 largest car insurance providers by market share. Conversely, USAA charged disadvantaged drivers the least compared to their counterparts. However, these drivers could still face an average price increase of $234 per year compared to others.

Among smaller, well-known insurance providers, price increases were also typical. We compared quotes from Erie, MetLife, Farm Bureau, Amica and Auto-Owners. We found that MetLife's premiums increased by $1,333 for drivers in Florida, Massachusetts, Rhode Island and Wyoming — where it's among the 10 largest underwriters of auto insurance. This was the widest gap out of all of these small providers.

On the other hand, insurers in the Farm Bureau network raised prices by $306 in the 13 states where it's among the companies that write the most policies. Aside from MetLife, the average cost increase among Farm Bureau, Amica, Erie and Auto-Owners was $509 per year.

How can drivers avoid ‘poverty penalties’ from their insurance providers?

Poor credit is the primary driver of higher premiums for most people. In Michigan, for example, an unemployed person with good credit who has a high school degree but isn’t a homeowner was quoted $2,015 for car insurance, or about $90 more than a driver with all the advantaged characteristics we compared in this study.

While the precise degree to which credit influences a policy's price depends on the state, it can be difficult for drivers without steady incomes to make payments on their debts, which is one of the easiest ways to improve credit scores quickly.

ValuePenguin recommends searching for auto insurance discounts and comparing prices. Most car insurance providers offer discounts for things most people can achieve easily. For instance, it's not uncommon for insurers to offer discounts for paperless billing or signing up online. While it's difficult to find an insurance provider that won't charge more to drivers based on their off-road characteristics, these most-affected drivers will still find that some rates will be substantially lower than others.

Methodology

On Sept. 24, 2020, U.S. Sen. Cory Booker, D-N.J., introduced legislation that would make it illegal nationally for insurance providers to consider any qualities except driving record when setting rates. A news release from the senator’s office specified his bill would prohibit insurers from considering "income, education levels and other factors unrelated to driving history and ability, preventing insurance companies from using these details to raise rates for low-income individuals, non-homeowners and others who otherwise have good driving records."

With this in mind, ValuePenguin gathered rates for drivers with nearly opposite profiles from every ZIP code and county in the country. One driver possessed all the qualities Booker's bill targets for equal treatment: unemployed renters with poor credit whose highest level of education is high school. Additionally, we sourced quotes for an employed driver with good credit who owns their home and has a four-year college degree.

After checking for the 10 largest insurance subsidiaries in each state, we gathered rates for our two driver profiles according to each state's minimum required insurance coverage. We were unable to get online quotes from Liberty Mutual, the sixth-largest provider in the country.

ValuePenguin's analysis used insurance rate data from Quadrant Information Services. These rates were publicly sourced from insurer filings and should be used for comparative purposes only, as your own quotes may be different.