Despite being at a lower risk of crashing, study finds low-mileage drivers are over-charged.
Even though they tend to file significantly fewer claims, a new study says auto insurers typically fail to give discounts to motorists who clock low mileage.
Only State Farm, among all the major auto insurance companies, routinely provided a discount for those who put on about 5,000 miles a year – roughly a third of the national norm – according to the study by the Consumer Federation of America.
“The failure of most large insurers to adequately reward low mileage especially harms lower income and older drivers because they drive the least,” said Stephen Brobeck, CFA’s executive director.
The federation study was based on research using a hypothetical 30-year-old single woman with a perfect driving record. CFA applied for minimum state-required liability coverage in 10 cities around the country to calculate if, and by how much, mileage might impact insurance rates.
(New AAA study finds motorists getting a break on cost-of-ownership this year. Click Here for more.)
For a Chicago resident, State Farm said it would charge $654 annually for someone putting on 20,000 miles a year, and $566 for a driver clocking just 5,000 miles.
Other insurers generally offered little or no price break at all, said the CFA, even though actuarial studies indicate that the less mileage a motorist puts on each year the lower their likelihood of filing an insurance claim.
During an earnings call on May 6th, Allstate President Matthew Winter noted that a recent trend towards higher claims “is externally driven, primarily by miles driven.”
Officials from the CFA say that is supported by several studies, including a recent one conducted by the Wharton School. Titled, “The Use of Annual Mileage as a Rating Variable,” it concluded that, “annual mileage is an extremely powerful predictor of the number of claims at-fault.” A separate study by MIT found that those logging 30,000 miles a year submitted 60% more claims, each costing 43% more than someone clocking 10,000 miles annually.
(Getting one ticket doesn’t always mean higher insurance, finds new study. Click Here for details.)
On its website, Progressive Insurance notes that, “Many auto insurers ask customers to estimate their annual mileage when applying for a new policy. These up-front estimates generally have a minimal influence on the overall premium.”
Progressive can track mileage for customers who use its Snapshot system which monitors a variety of factors that also include how and when a vehicle is being used. It promises to reward “good” driving behavior, a spokesperson for the insurer telling the Chicago Tribune, “how you drive is more important than how much you drive.”
A variety of factors are typically used to calculate insurance rates, including age, sex, location and even job status, credit record and education calculated in. A motorist’s driving record is often a major determining factor, with those who’ve had multiple claims or tickets routinely penalized with higher rates.
(Maine is cheapest state for auto insurance, Michigan most expensive. Click Here for more.)
The Consumer Federation says insurers are doubly penalizing the poor by ignoring mileage since low income drivers often face higher rates based on their lower education and poor jobs.
The CFA – an association of 250 nonprofit consumer groups – wants to see regulators and state lawmakers step in and require insurance companies to give lower-mileage drivers a break.
No surprise here… SOS, DD. Exploitation of consumers began the second auto insurance became compulsory. I’m not opposed to compulsory auto insurance I’m opposed to extreme exploitation of consumers by the auto industry, the oil industry, etc. Any industry monopoly/Cabal should be properly regulated to protect consumers and that simply does not happen in the U.S. be it utility companies, cable companies, Telcos, etc. They all get to unscrupulously exploit consumers and low income consumers suffer the most.
I have two cars that get less than 150 miles per year; one has had -0- miles for a few years as I have done some restoration. I realized years ago I was fortunate to have insured with State Farm, after finding others would not insure them at all and State Farm even offered “stated value” policies and, eventually, non-cancellable policies on all my cars. For my 1957 car under restoration, but kept registered and tagged, they barely charge me $200/yr. They also have a 7,500 mile cut off for a much lower rate instead of 5,000, which can be enough for a summer sports car that might be pricey otherwise.
State Farm uses the same data as other insurers, I’m sure. So what does that say about their pricing as outlined in the article?
They all have some means of exploitation. It’s good that you get a low rate for low mileage vehicles – as it should be as their exposure is lower.
Unfortunately when you check you’ll find someone is paying higher premiums to provide the lower rates you enjoy. It’s all a game with insurance companies. They over-charge many if not all. Then as the TV commercial says, they only pay for 3/4 of your new car when someone totals it for you…
I have a similar type of insurance for my classic but is far better for my needs than what SF, P, G or any other insurance companies who really don’t offer “classic car” insurance. A lot of times those policies are hella strict and if an unfortunate event happens you find out fast they don’t cover the good quality parts or the shops; you’re left with getting very ill-fitting Chinesium put on by the junior staff of the body shop; or they just do what they do with the newer vehicles, total them out, cut you an undervalued check and pat you on the head (after bending you over).