The truth about car insurance: Readers and insurers react

Hundreds of consumers are speaking up on Facebook and Twitter about the normally hush-hush topic of how car insurers use credit scoring and other non-driving-related factors to set prices. The commentary was sparked by our new investigative report, "The Truth About Car Insurance," which examines the secrecy and inequities in the pricing of automobile insurance. Regulators also stepped up to offer money-saving advice on Twitter, while insurers pushed back on Consumer Reports.

In a prepared statement, David Sampson, president of the Property Casualty Insurers Association of America, lashed out at our report, which he said "boldly suggests to be letting readers in on a 'big secret', namely that one's credit history is a factor in the score used to determine automobile insurance quotes."

But the fact is that insurance companies don't advertise the credit scoring methods they use to set prices, and the scores themselves are confidential. "When I first found out that my credit score had a bearing on the rate I would be charged for my auto insurance, I was shocked!!! Credit scores have NOTHING to do with how badly . . . or how well . . . a person drives!" said Rosella LaChapelle Koeller in her Facebook comment about our report.

Koeller is not the only one in the dark about how credit scores are being used by insurers to set premiums. Eighty-eight percent of consumers say their insurance agent never told them how their credit score affects their auto or home insurance rates, according to a 2009 survey of 1,240 Iowans by St. Ambrose University, of Davenport, Iowa.

Insurance credit scoring unfairness

Readers were also concerned about being unfairly charged higher premiums based on credit scores that were hurt by factors outside their control. "My credit score isn't perfect due to life situations (spousal death, illnesses, and loss of jobs)," said Michelle Williams, another reader, who says she has not had any at-fault accidents in the last 10 years. "My insurance is ridiculous, but I have to have it because it is required by law and it protects me. Why should I have to pay as much or more than someone who has caused one or more accidents simply because my credit isn't that great?"

Sixty-seven percent of U.S. consumers said they believe that the use of credit scoring to set insurance rates is unfair, according to a 2012 survey of a nationally representative sample of 1,200 consumers by the Consumer Federation of America.  

But one active Facebook commenter, Melinda Mayfield Pino, who described herself as working in product management for "a major auto insurer," said credit scores are "a wonderful predictor of future losses, probably because more responsible, conscientious people have BOTH fewer accidents and better credit scores." 

Join the thousands of consumers who have already signed our petition to tell insurance regulators and companies "Price me by how I drive, not by who you think I am."

Consumer protection

Pino also compared the lack of transparency surrounding insurance credit scoring to Coca-Cola's secret recipe and explained why insurers keep scoring models hidden even when regulators require that they be open to consumers. "In the states that don't promise us confidentiality, we have to file "dumbed down" versions of our secret recipe so that our competitors can't copy it," Pino said.

"I am terribly disappointed that Consumer Reports, whom I thought had the best interests of consumers at heart, doesn't either understand how insurance is priced, or has a hidden agenda," Pino said. 

Our mission to protect consumers is hardly hidden. We're asking consumers to sign our petition, which tells the 50 state insurance commissioners to "Price me by how I drive, not by who you think I am." More than a hundred consumers have done so at #FixCarInsurance. We advocate car insurance pricing based primarily on driving-related risk factors, and we make no secret of our belief that black-box pricing based on credit scores and Big Data should be prohibited.

Better regulation

By far, the biggest focus of our readers' Facebook comments was on the effectiveness or ineffectiveness of government regulation. 

Many agreed with Nola Nicholas Deffenbaugh, who said that without government regulation, companies tend to try to get away with as much as they can. Gary W. Addis concurred. "Regulations attempt to protect us from both predatory corporations and from socialistic pricing," he said.

But some others, like Frank Harrison, expressed frustration that "since the big businesses make the regulations, then lobby them through legislatures . . . the regulations do no good."

Sue Marston, who describes herself as a 23-year activist, said, "The government has become married to special interest groups." Mary Thoma agreed, saying, "The insurance lobby is powerful because it has so much money."

In 2014, property and casualty insurers pumped $51 million in contributions into the election campaigns and committees of the same state officials who regulate their business, according to the non-profit, nonpartisan National Institute on Money in State Politics, based in Helena, Mont.

That makes the industry the fifth largest contributor to state politicians, behind such business interests as casinos and gaming, health insurance, and Wall Street. P&C insurers put as much cash into the palms of state officials as the telecom, oil and gas, and pharmaceutical industries combined. 

In politics, money often comes with expectations. "Companies give money to candidates as an investment to at least gain access to legislators and possibly influence the legislation," says Denise Roth-Barber, managing director of NISPM and FollowTheMoney.org.

Savings advice

Our readers also offered their own advice for saving money. Peter Page said he's noticed a pattern of 12 to 20 percent annual price hikes that smack of price optimization, an industry practice that raises premiums on customers deemed unlikely to shop around. To combat the increases, Page...shops around. "I change insurance companies every year," he said.

"Double-check your agent, too," advised Jeanne Healy. "Our 'independent' agent billed us over $2,400 and said that was the best he could do. Before paying I called the insurance company directly, I got the same policy, with a little better coverage for $975."

Regulators pitched in, as well, with money savers. Fifteen state insurance departments and the National Association of Insurance Commissioners gave consumers links to savings tips via our #FixCarInsurance community on Twitter. 

—Jeff Blyskal (@JeffBlyskal on Twitter)