Legal discrimination
This is where it gets tricky. The word discrimination has taken on a negative connotation over the decades. Any discrimination is thought to be illegal, but in terms of insurance, no other word best defines what auto insurance companies do when distinguishing between classes of risk based on factors that might be seen as illegal discrimination.
Insurance companies can discriminate between drivers based on gender, marital status, driving history, credit, zip code where they live, criminal past, and what car they drive.
Gender
A young female might cost more to insure than a male of the same age as, statistically, drivers in that class crash more frequently and with a higher severity. That may seem unfairly discriminatory toward young female drivers, but car insurance companies have been granted the right to make that distinction in Oregon. Many have viewed gender discrimination as unfair and have fought for change. Oregon responded by creating a non-binary gender category represented by the letter X rather than F or M, which requires the driver to declare the neutral status when applying for an operator’s license. The auto insurance companies responded by building into their rate structures a third classification to offer to those who have explicitly chosen the non-binary status. The insurance rate base for this gender class is essentially an average of the risk between male and female.
Marital Status
Auto insurance statistics prove that married individuals have fewer and less severe crashes than unmarried drivers. A married credit will apply in the calculation of rates as long as both spouses are listed on the policy, regardless of whether one may not be licensed to drive. Before same-sex marriage was legal in the State of Oregon, many insurance companies offered the same married credit to couples who declared themselves as life partners. All this was done on the honor system. Once same-gender marriage was allowed, this class distinction disappeared.
Driving History
Few people argue that a driver with more infractions, accidents, and claims should pay the same as anyone else with a clean driving record. Statistically, if a driver has a speeding or running a red light ticket, they are more likely to be involved in an accident. The probability of causing a crash increases with each additional infraction a driver gets. The likelihood of having a second crash within a seven-year period increases after causing the first one, so insurance companies often charge more in premium for the second accident than the first.
Credit
Insurers, creditors, and employers can tell a lot about someone from his or her credit history. For creditors, they want to know if they will get paid back if they loan the applicant money. The best indicator that a debtor will pay in the future is if they have repaid the principal and interest in a timely fashion on past loans. Employers want to know if the employee will fulfill the tasks assigned to them and not steal or destroy company assets because of heavy-debt pressure.
Auto insurance companies can see from your insurance credit report, which is a hybrid compilation of both an applicant’s insurance purchase and claims history and his or her consumer credit history. Many argue that the ability to drive a car safely should not hinge on a person’s debt or failure to pay back a loan. Insurers respond by pointing out that slow payments on other debt may affect the policyholder’s ability to pay timely premiums.
Zip code
Where one lives influences the price of auto insurance. Periodically, insurers will adjust rates based on the zip code where a driver lives because of an increase or decrease in the number and severity of claims in that code. Moving a block away into a different zip code could literally raise or lower your premium.
Criminal record
Insurers have only in the last decade or so, applied a criminal activity factor to the price of auto insurance. How much the premium goes up depends a lot on what the driver was convicted of. Any conviction, including aggravated circumstances or fraud-related activity, will affect rates. Some companies will deny insurance altogether if the applicant was charged and convicted of insurance fraud or some other financial-related crime.
Make and model of automobile
Many prospective auto insurance buyers are shocked at the difference in price from one car to another. Insurers discriminate between various automobile manufacturers based on statistical safety performance. If the number and amount of claims paid out for a particular car brand is higher than another, they will charge more for that brand. They even discriminate between cars of the same make and model that have been involved in a theft or crash, totaled or not.
Summary
Just because an auto insurance company charges different prices between driver classes does not mean it is unfairly discriminating against the applicants. The drivers fitting in the cheaper classes don’t want to subsidize the higher-priced classes. Those in the more expensive strata want to lower their premiums and often argue that the insurers’ practices are unfair. For now, in Oregon, we have rates that vary based on all the factors mentioned above.