By Marisa Endicott, SANTA ROSA PRESS DEMOCRAT
July 24, 2022
I went online last week to get a car insurance quote from Mercury Insurance. I went through the process twice, once listing my occupation as engineer.
All the rest of the information was the same — my age, address, driving record, car make — but as an engineer, I was given a lower monthly rate: $247.88 instead of $262.88 and a potential yearly savings of $179.89.
My price comparison experiment was inspired by a petition filed July 18 by Consumer Watchdog, a taxpayer and consumer advocacy group, protesting Mercury Insurance Co.’s request to the California Department of Insurance to bump up its auto rates.
Mercury Insurance, a major car insurance provider in California, is asking to raise its rates on customers by 6.9%, or $131 million.
But a major factor that underlies Consumer Watchdog’s demand for a public hearing on the proposal is its claim that Mercury’s rates are not only “excessive” but “unfairly discriminatory.”
“It's an issue that we have been fighting for many years to rectify in California where insurance companies have been illegally surcharging folks based on arbitrary job categories,” Consumer Watchdog Executive Director Carmen Balber told me.
In 1988, Californians passed Proposition 103, which required insurance rates to be based primarily on standards like driver safety and experience rather than arbitrary discriminatory characteristics, like employment status, credit score, place of residence or gender. Rate increases and other rate-setting factors now have to be approved by the Department of Insurance.
The use of gender in rate setting was officially banned in January 2019.
The department has never approved using education or occupation as a deciding metric per se, but insurance companies have found a loophole by providing discounts for what they call “affinity groups.”
Depending on the company, these discount categories include employees of the insurers and members of alumni or specific professional associations, but there are also broader group carve-outs for, in Mercury’s case, government workers (if in administrative or technical positions), scientists (with at least a bachelor’s degree working in certain fields) or engineers.
“Companies are cherry-picking customers, and it's causing discrimination in the auto insurance market,” Balber said.
While educators and military service members, too, are eligible for discounts, the groupings skew toward high earners with more education.
Disparate impacts regardless of driver safety
The data bears out the consequences.
Three-quarters of people in underserved communities aren’t in any of these special discount categories, according to a 2019 analysis of insurance companies with “affinity groups” by the California Department of Insurance.
The report found, too, that outside such groups, about 60% of customers, pay 1.5% to 25.9% more for their car insurance premiums. They also tend to be in ZIP codes with lower incomes and lower educational attainment that have a higher percentage of people of color.
Importantly, it’s not a stretch to see how low-income and predominantly Black and brown communities might be at a disadvantage if discounts favor people with advanced degrees and higher paying specialized jobs.
On balance, Black and Latino Californians are less likely to have a bachelor’s degree or higher and also earn less than their white counterparts.
Undocumented residents, who are most likely to work in low-paying jobs, are especially shut out from these benefits in general.
“Insurance companies in California are improperly utilizing a person’s occupation and education to set auto insurance premiums,” a group of almost a dozen civil rights and community-based organizations wrote to Insurance Commissioner Ricardo Lara in the months before the state’s investigation.
“Most glaringly, working people with regular jobs are paying higher auto insurance premiums so that doctors, engineers and other high-income wage earners can pay less.”
In its letter, the coalition noted that “Farmers Insurance charges a factory worker a 14.5% higher annual premium than either an accountant or a physician,” and, “Progressive Auto Insurance charges an office manager with a high school diploma a 6.3% higher annual premium than the same driver with the same occupation who has an undergraduate degree.”
Unlike with rate-setting metrics based on factors like safety that bring rates down for everyone since there are less severe accidents and claims, occupation and education don’t necessarily correlate with driving risk.
The state’s analysis found only 2% more affinity group members met the state’s “good driver” definition.
Simply being an engineer doesn’t make me a safer driver.
“If something is actually reducing costs, then you can give people a discount without anyone else having to pay for it,” Balber said, “but you being an engineer doesn't reduce anybody's costs. Then, someone else has to pay for that.”
Mercury Insurance didn’t responded to requests for comment.
An industrywide practice
Seven of the top 10 insurance companies in California use some variety of discount groupings based on education or profession, including Allstate, Geico, Farmers Insurance, Progressive, Liberty Mutual, AAA Insurance Agency and Mercury, per Consumer Watchdog.
State Farm, USAA and AAA Northern California Nevada & Utah do not.
Mercury’s recent rate hike request gave Consumer Watchdog another opportunity to push back against what it sees as a discriminatory rating system, which the organization considers all the more urgent given the strain of inflation on fuel prices and cost of living.
“I don't think there’s a Californian who would think that it's a good time to see a rate increase right now. They're all being slammed with higher gas prices, higher prices in the grocery store, higher rent, you name it, so it's the last time when Californians can afford another unexpected charge on their monthly bills,” Balber said.
And, “it's unfair and outrageous that the worst of this rate increase is going to fall on those Californians who can least afford it. By giving discounts to white-collar professionals and surcharging working class and low-income Californians, Mercury is putting the brunt of the rate increase on Californians who can least afford it.”
While the proposed rate bump would increase auto insurance prices about $80 per vehicle per year on average, she said, lower income drivers could pay as much as $200 per year more at a base rate than those in preferred jobs.
“The California Department of Insurance has not approved any auto insurance rate increases since the beginning of the pandemic in March 2020,” Department of Insurance spokesperson Michael Soller said. “Instead, Insurance Commissioner Ricardo Lara’s priority is that insurance premiums during the COVID pandemic accurately reflect consumers’ driving behavior and risk of loss.”
After its 2019 investigation, the Department of Insurance drafted a regulation that would have protected existing affinity groups but incentivized the creation of new such groups for underserved socioeconomic communities.
“Under our proposed regulations organized groups such as teachers, firefighters, veterans, and seniors can continue to benefit from these auto insurance discounts,“ Soller said. “But the regulations would prohibit auto insurance companies simply giving discounts based on a person’s educational level or occupation – which prevents many Californians from otherwise accessing these discounts.”
However, it has yet to be finalized. The department held a public workshop last year but has faced pushback and misinformation from the insurance industry, according to Soller.
Michigan, Vermont, Massachusetts and New York have all banned the use of education and occupation in setting car insurance rates in recent years.
Interested consumers can reach out to the California Department of Insurance to weigh in or get information on upcoming public meetings and workshops by contacting [email protected].
Since Consumer Watchdog intervened to challenge Mercury’s rate proposal, the department will decide whether to hold a public hearing. (If Mercury had requested a rate bump of 7% or higher, any public challenge would have automatically resulted in a public hearing, but the company proposed a 6.9% increase.)
In the meantime, experts also recommend vehicle owners shop around and be mindful of different insurers’ affinity groups which you can find out online or by asking an insurance agent.
“In Your Corner” is a new column that puts watchdog reporting to work for the community. If you have a concern, a tip, or a hunch, you can reach “In Your Corner” Columnist Marisa Endicott at 707-521-5470 or [email protected]. On Twitter @InYourCornerTPD and Facebook @InYourCornerTPD.