May 12, 2016

Does Renting Your Home Mean You're a Lousy Auto Insurance Risk?

Auto insurers are being taken to task for their track record of charging customers higher premiums if they rent, vs. own, their homes. In fact, an analysis of premiums by the nonprofit Consumer Federation of America (CFA) found that major auto insurance companies charge safe drivers as much as 47 percent more for basic liability auto insurance if they don’t own their homes. CFA discovered that quoted premiums nationwide are 7 percent higher on average for drivers who rent. The practice is being called discriminatory because it handicaps consumers with low and moderate incomes.

The latest Census Bureau data shows that the median income of renters in the U.S. was $31,888 in 2012 compared with $65,514 for homeowners.

“A good driver is a good driver whether she rents or owns her home. Insurance companies should not be allowed to target people based on homeownership status,” said CFA Insurance Director J. Robert Hunter. As a consumer advocate, Hunter suggested that state insurance commissioners and elected representatives should step in and stop the practice.

As recounted in a CBS Money Watch story, Hunter and the consumer group believe that “insurers should base rates strictly on driving records, meaning traffic tickets and accidents.”

The Insurance Information Institute’s (III’s) Chief Actuary James Lynch disagrees. Lynch argues, reportedly, that past performance is not an indication of how people will drive in the future. He stands by the insurance industry’s use of homeownership as one factor in determining premiums, stating that socioeconomic data like homeownership is a valuable tool in helping insurers find out who should pay more or less for car insurance. He explained that such data is used in sophisticated computer insurance models to determine the drivers most likely to have accidents year after year.

Who’s right here? It’s possible that neither point of view will hold much weight in the future.

What factors should determine your insurance costs?

If it’s not past driving behaviors or socioeconomic data that should determine car insurance premiums, then what should? A look into the future might provide the best answer. Consider that cars of the future may be equipped with tracking devices that insurance providers can use to assess real-time driving behaviors. In that case, neither your driving history nor how you pay your monthly housing bill will have any impact on how your insurance provider determines your rate.

Wish I'd installed a tracker                  Source: Reuters/Arnd Wiegmann

Yes, comprehensive vehicle tracking might be coming to your neighborhood soon! Thanks to technology advances, car owners who agree to full tracking of their driving behaviors may be eligible for reduced rates from insurance companies. As a matter of fact, Progressive already offers a 10 percent to 15 percent discount to customers who agree to be tracked. While this certainly smacks of George Orwell’s “Big Brother” apparatus, at least you’re rated on your own merits and not on some nebulous socioeconomic indicator.

So, as you look down the road, consider how the following trackable driving behaviors would affect your insurance premium costs:

  • Failure to keep in proper lane
  • Driving on the wrong side of the road
  • Not adjusting to road obstacles
  • Reckless or careless driving
  • Overcorrecting
  • Hard braking
  • Actual miles driven
  • Time of day of driving

Drivers who take active steps to improve these driving skills can receive car insurance discounts, since safer driving means fewer claims. In this regard, maybe it’s even a little surprising that tracking-based insurance isn’t already more widespread. Progressive has found that key driving behaviors like those listed above carry more than twice the predictive power of traditional insurance rating variables, including such firmly entrenched metrics as a driver’s age and the make and model of the insured vehicle.

As so many factors play into determining your auto insurance premiums, shopping around among providers and familiarizing yourself with their options is your best assurance for keeping payments low.


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