Heaven help your wallet if you drive and your credit's a disaster, or if you have little income or education.
In the eyes of auto insurers, you might as well have plowed into a fire truck.
That's because these factors make you a high risk to insure: Statistically, you are likely to spend less on insurance and more likely to file a claim. Insurance companies compensate by charging you a higher premium, even with a spotless record on the road.
How much more? A 2011 CarInsurance.com analysis found that drivers with flawed credit pay nearly $23,000 more for car insurance over their lifetimes.
"In car insurance we're not even correlating this to riskiness of driving," says Eric Poe, the chief operating officer of CURE Auto Insurance, a small not-for-profit operating in New Jersey and Pennsylvania. "It's the risk of not being profitable."
The correlation between credit-based insurance scores and claims is well-documented and widely accepted. Nearly all insurance companies use credit as a factor in calculating rates except in the three states that prohibit the practice: California, Hawaii and Massachusetts.
Insurers also can consider additional non-driving factors such as your occupation and whether you graduated from high school or own a home.
Driving record is what matters
The person who drives responsibly but has lousy credit is the one who pays.
Poe, who took over the company reins from his stepfather, a former state insurance commissioner, is on a mission to change this rating practice.
CURE -- founded in 1990 as the Citizens United Reciprocal Exchange -- refuses to consider a driver's credit score, occupation or educational background, calling such factors discriminatory attempts to identify drivers with low incomes.
"It's wrong," says Poe. "I'm not saying that an insurance company can't make money. I'm saying don't make it on the backs of people who can't afford it."
The solution from CURE -- which as a not-for-profit doesn't have to answer to shareholders or investors in search of returns -- is this: Sell only to very good drivers, and don't worry about characteristics related to income. Why, he asks, should a janitor with a great driving record pay more than a lawyer does, simply to insure his car?
Who benefits? Those who make a car insurance comparison with more traditional companies that raise rates based on non-driving factors:
- Good drivers who have poor credit due to debt, errors by credit agencies, layoffs, divorce or other factors.
- Good drivers without a college degree.
- Good drivers who are unemployed, or whose occupation group falls into a low-income category.
- Someone with both a good driving record and a good credit score may be able to get a lower rate through CURE, but it depends on a multitude of factors.
Who doesn't benefit, or benefit as much? People who don't have great driving records.
In 2012, CURE picked up 11,000 new customers in the states where it operates.
CURE doesn't accept new customers with more than one at-fault accident in the last three years, for example, or those with nine points or more on their motor vehicle records. A policy holder who has an accident may see a big rate increase, especially families with younger drivers.
Poe admits the company keeps a "very short leash" on those drivers. If there's an incident, they may be cut.
Drivers with good credit and good driving records may be able to find a lower rate through CURE, but sometimes not.
The flip side: fewer discounts
CURE insures about 60,000 vehicles in two states, taking in $60 million in premiums. But even Poe admits that CURE could be forced into considering credit just to compete.
Typically, higher rates paid by riskier customers allow car insurance companies to offer discounts for things like homeownership or college degrees or particular occupations that are correlated with lower risk. Those discounts attract more lucrative, higher-income customers who have more stuff to insure.
The nonprofit Consumer Federation of America issued a blistering report last year documenting the disparity in rates for good drivers based on their incomes.
"It is difficult to avoid the conclusion," the CFA report says, "that major insurers are far more interested in selling auto insurance to higher-income families."
Poe is now working with a U.S. congressman to require insurance companies to notify consumers when and how these income proxies are affecting their rates, with the ultimate goal of spurring an "uprising" to ban the practice.
CURE does offer discounts for accident- and ticket-free driving histories, as well as for secure parking.
Does lack of credit factors raise rates?
Insurance rates in Massachusetts are a bit higher than the national average, as are those in California and Hawaii. (You can compare rates in every ZIP code here.)
The insurance industry would blame those higher rates on the absence of discounts for income-related factors, which they say save most drivers money.
Not so, says Frank Mancini, president and chief executive of the Massachusetts Association of Insurance Agents.