A national consumer group has charged that innocent drivers in most states are being forced to pay more for auto insurance for accidents in which they are not at fault.

The report from the Consumer Federation of America (CFA) further claims that drivers with higher incomes are penalized less than moderate income insureds involved in no-fault accidents.

Insurance industry groups say the research is flawed in its conclusion and in its methodology of comparing the experience of a new customer with no prior insurance with that of a driver who has had prior coverage.

But CFA and the industry agree it proves the value of consumers shopping around for the best deal on insurance.

CFA said it analyzed premium quotes in 10 cities from five of the nation’s largest auto insurers. Among the cities tested, drivers in New York City and Baltimore pay out the most for doing nothing wrong, and customers in Chicago and Kansas City also face average increases of 10 percent or more when another driver crashes into them, according to CFA.

CFA said it found that insurers vary in how they handle no-fault accidents. Progressive used the not-at-fault penalty most aggressively, surcharging drivers in every test where such an increase is not prohibited by state law, according to the report. GEICO and Farmers sometimes raised rates by 10 percent or more for not-at-fault accidents. Allstate occasionally penalized drivers who did not cause the accident, while State Farm never increased premiums for these accidents.

The CFA report compared the experiences of two female drivers in each city who lived at the same address, were 30 years old, licensed for 14 years, and drove a 2006 Toyota Camry 10,000 miles each year. The upper income driver was married, a homeowner and a bank executive with a Master’s degree. The moderate-income driver was a bank teller, who was single, rented an apartment, and had a high school degree.

The upper income driver has had auto insurance with the same insurer for the past three years, while the moderate-income applicant has not had auto insurance because she has not had a car.

Comparing these two good drivers, CFA found the following:

  • Higher-income drivers paid $78 more on average after a not-at-fault accident;
  • Moderate-income drivers paid $208 more on average after a not-at-fault accident;
  • Higher-income drivers faced a 6.6 percent penalty on average after a not-at-fault accident;
  • Moderate-income drivers faced a 9.6 percent penalty on average after a not-at-fault accident.

“Innocent drivers who don’t cause accidents should not be charged more because someone else hit them,” said J. Robert Hunter, CFA’s director of Insurance and the former Insurance Commissioner of Texas. “Most people know that if they cause an accident or get a ticket they could face a premium increase, but they don’t expect to be punished if a reckless driver careens into them.”

CFA: State Lawmakers Should Prevent Penalties on Innocent Drivers

CFA called on state lawmakers to prohibit penalties on innocent drivers. It said that California and Oklahoma already have regulations preventing insurers from raising rates on drivers when they are involved in an accident that was not their fault.

The National Council of Insurance Legislators (NCOIL), which represents state lawmakers involved with insurance legislation, tends to agree with CFA. While he had not yet reviewed the CFA report in detail, Tom Considine, CEO of NCOIL and former insurance commissioner for New Jersey, said insurers should not be assessing a surcharge or raising premiums on innocent parties involved in no-fault accidents. “In these situations, the insurer of the faultless party should use subrogation against the at-fault party’s insurer to recoup its expenses,” Considine said. “The blameless driver should have no adverse economic consequences.”

Insurance industry groups, however, took issue with CFA’s data collection, methodology and conclusion.

Loretta Worters, vice president of Communications for the Insurance Information Institute, cautioned that data collected through an insurer’s website is not the full story when it comes to rating policies. There are often questions surrounding no-fault accidents. “[I]t is rarely clear-cut as to whom the at-fault party is after a collision between two vehicles. Insurance companies look at each claim based on many factors. In addition, a not-at-fault driver’s auto insurer often incurs expenses after an accident because of subrogation,” said Worters.

Worters said “assigning fault in an accident is rarely a zero-sum process where one driver is 100 percent at-fault whereas the other driver is zero percent at-fault.”

CFA’s choice of driver profiles to compare came in for criticism.

“Prior auto insurance is a commonly used rating factor that is highly predictive of future loss. Rather than using the same prior insurance status to compare the moderate and higher income driver, CFA used no prior insurance for the moderate-income driver, but three years with the same insurer for the higher income driver. The result is a study that provides no real insights about the effect of a not at fault accident on premiums,” said David Snyder, vice president of policy development and research for the Property Casualty Insurers of America (PCI).

Snyder also claimed the report fails to consider the variety of state laws concerning at-fault accidents. He said some states have blanket prohibitions, while other states address the specific circumstances CFA provided as examples such as being hit while parked, or struck from the rear. “The end result is a report that attempts to present auto insurers negatively but fails to provide consumers with accurate or useful information,” Snyder charged.

According to Neil Alldredge, senior vice president, State and Policy Affairs, for the National Association of Mutual Insurance Companies, the report underscores the fact that insurance rates can vary widely from company to company, based on how companies weigh the many different factors that are considered in determining rates. He, too, criticized CFA for comparing one driver who had prior coverage with another who did not. “This is significant because some companies reward loyal customers by forgiving infrequent accident claims – a practice that belies the CFA’s claim that insurers are trying to ‘train’ their customers not to file claims of any sort,” Alldredge said.

Alldredge also noted that the CFA report did not state whether any actual consumers are paying these rates, suggesting that in the real world consumers are often entitled to various discounts including for buying renters or homeowners coverage from the same insurer.

While critical of CFA, Alldedge couldn’t resist noting that the one insurer that did not penalize for no-fault accidents was a mutual insurer, namely State Farm.

The American Insurance Association (AIA) drew one overriding conclusion from the report: consumers are wise to shop around.

“Personal automobile insurance remains one of the most highly regulated and competitive markets in the United States. State regulators review policies and rates, including factors cited by the Consumer Federation of America, to ensure that they are not excessive, inadequate or discriminatory,” said Lawrence Eckhouse, AIA counsel. He said “even the CFA report” highlights the variability of rating factors, business outcomes and prices, “while also encouraging consumers to shop around.”

*This story appeared previously in our sister publication Insurance Journal.