Your job and education could be determining your car insurance rate

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.

Other investigations and reports uncovered similar disparities in California and nationwide.

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.