The Chicago Sun-Times reports that a new study shows that Illinois drivers with less than excellent credit pay an average of $491 more a year in Illinois for car insurance, even when they have an excellent driving record.
The findings come from the nonprofit advocacy group Consumer Federation of America and show that auto insurance pricing is biased against the poor while consumers have seen some of the steepest increases in car insurance rates in years.
The group found that an Illinois driver with a conviction for driving under the influence but with an excellent credit history paid $862 less a year, on average, for car insurance than a person with a good driving record but a poor credit history.
In an earlier investigation by the Chicago Sun-Times, the paper found “price disparities that hurt women, renters, people working jobs that don’t require college and people living on the ‘wrong’ side of a ZIP code dividing line.”
“Because credit history correlates to race and income, raising premiums on drivers with lower credit disproportionately harms low-income consumers and people of color,” the report said.
In Illinois, the average annual premium was $424 for drivers with excellent credit, $607 for drivers with fair credit and $915 for those with poor credit.
A driver’s ZIP code has an outsized influence on rates, meaning that persons who live in poorer ZIP codes because they are financially struggling end up paying more for insurance.
State Rep. Will Guzzardi, D-Chicago, who has sought more fairness in car insurance rates in Illinois, says that rate increases have been especially hard on low-income consumers. “Drivers are facing staggeringly higher car insurance premiums just on the basis of having bad credit, and we know who is being harmed,” Guzzardi said.
The use of race, religion or ethnicity already is banned in deciding how much people will have to pay for car insurance, but Guzzardi says that factors like credit score and ZIP code act as proxies for race, ethnicity, gender, and income.
The Sun-Times also has reported that major auto insurers have raised rates in Illinois by more than $1.7 billion in less than two years, and that Allstate, the second-largest auto insurer in Illinois, has increased its average premium in Illinois by about 60% since the start of 2022.
Insurance industry representatives have argued that credit history strongly correlates with a person’s likelihood of filing an insurance claim and that removing data makes risk models less accurate, meaning price increases for some people who’d be effectively subsidizing other drivers.
And Dave Snyder, vice president of the American Property Casualty Insurance Association, says including credit when assessing risk helps create “fairer insurance rates overall because they are a more accurate prediction of future losses,” according to the Sun-Times.
Guzzardi’s proposed law would require auto insurers to get prior state approval for rate hikes, ban “excessive” increases, and ban using credit history, gender, marital status, age, occupation, schooling, home ownership, wealth or past insurance company relationships in setting rates.
Currently, insurance companies are not required to obtain any form of approval for rate hikes.
