Protect Insurance

Your ZIP Code May Be Driving Up Your Car Insurance Premiums by $200 or More Per Year

Jean Chatzky and Rebecca Cohen  |  September 17, 2020

Where you live can have as big of an influence on what you pay for auto insurance as having a speeding ticket on your record.

Among the factors used to determine how much you pay for auto insurance, where you live is one of the most contentious.

Studies show that rate-setting practices that rely in part on a driver’s ZIP code leads to minorities paying more for the exact same coverage as drivers who live in predominantly white communities.

How much more are we talking about? In New Orleans you’ll pay $891 more per year on average if you live in a less-white neighborhood. It’s $570 more in Baltimore, $360 in Oakland, $348 in St. Paul, Mn., $231 in Kansas City, Mo. and so on, according to recent data. 

Researchers at MoneyGeek found that in many locales, the “ZIP code penalty” impacts auto insurance premiums more than getting a speeding ticket or experiencing a 55- to 60-point credit score drop.

Talk about non-sequiturs: “For Black and Latinx consumers, when companies use ZIP codes, they are very likely to be incorporating several factors that probably have nothing to do with how good a person is as a driver or even their propensity to pay their bills on time,” writes David Crockett, Ph.D., associate professor of marketing at the University of South Carolina, and one of the study’s commentators. 

Speak up and save on your auto insurance

State insurance regulators are taking steps to prohibit or limit the use of rating factors that lead to racially discriminatory auto insurance pricing. The National Association of Insurance Commissioners (NAIC) announced in July the formation of a Race & Insurance committee. The group is examining pricing practices that disadvantage minorities. It says it will make recommendations to the industry by the end of 2020.

>> RELATED: The Less White Your Neighborhood, the More You’ll Pay for Car Insurance

For now, you’re in the driver’s seat. It’s on you to see if you’re paying a ZIP code penalty — and to make sure you get credit for factors that really matter, like your driving record, claims history and good-customer discounts. To do that: 

Find out what non-driving factors an insurer looks at: Insurance premiums are based on more than just geography. Age, gender, amount of coverage, claims history can all affect how much you pay for coverage. In some states, credit history, education level, marital status and occupation are also allowed to be used. The Zebra has a rundown of non-driving insurance rating factors by state

Ask how your rate was set: It’s time to get personal. In many states, insurers are required to provide detailed disclosures to customers. But you have to ask. Also ask what your premium would be if you moved to a different ZIP code. This line of questioning may make them more willing to negotiate your rate.

Get three quotes to comparison shop: Insurance rates can vary widely from one carrier to the next. Shopping around can give you a sense of just how much and also reveal other options. You can do this online, but you’ll be able to get more information if you talk to a person. 

Don’t wait to switch carriers: If you find a better deal, switch. Even if you’ve paid your premium in advance to cover the next six months. You don’t need to wait for the clock to run out on your auto insurance coverage to switch insurers. When you cancel coverage, the company will reimburse you on a prorated basis.   

Make sure you’re getting all the COVID-19 discounts you deserve: People have been driving a lot less during the pandemic. If you’re still working from home and your car is gathering dust in the driveway, contact your insurer. Many companies have already factored in a discount for this and have paid customers quarantine refunds. You may be able to negotiate an even deeper discount than the 15% off premiums for a few months or the one-time $50 payment some insurers have offered. (See 7 Ways to Cut Car Insurance Costs During the Pandemic for more tips.)

File a complaint if you suspect a discrepancy: Demanding change can make a difference. Watchdog groups have gotten insurers to change their discriminatory pricing practices. In 2017  Consumer Reports and ProPublica investigated car insurance premiums and payouts in California, Illinois, Texas and Missouri. Their work eventually drove Nationwide and USAA to adjust their rates.

As an individual consumer, you can continue to apply pressure when you suspect something is amiss. File a complaint with your state insurance commissioner. Use your voice to hold insurance companies to fair pricing practices.


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