Renters Pay $112 More a Year for Car Insurance. Is That Fair?

Auto insurers levy something akin to a home renters’ surcharge on policy-holders, and that’s unfair, the Consumer Federation of America alleged on Monday. The interest group says it secret-shopped for typical driver policies in 10 U.S. cities and found renter rates averaged 7% higher – costing those consumers $112 annually – over rates offered to an identical consumer who was a homeowner. Renter rates were as much as 47% higher, the CFA said.

“To raise people’s auto insurance premium because they can’t afford to buy their homes unfairly discriminates against lower-income drivers,” said J. Robert Hunter, CFA’s Insurance Director and the former Insurance Commissioner of Texas. “A good driver is a good driver whether she rents or owns her home. Insurance companies should not be allowed to target people based on homeownership status.”

The organization says it tested rates for minimum limits liability coverage in 10 cities from the nation’s largest insurers – State Farm, Geico, Allstate, Progressive, Farmers, Liberty Mutual and Nationwide. It used company websites to solicit two premiums in each city for a 30-year old female motorist who drives a 2005 Honda Civic and has a perfect driving record.

Liberty Mutual penalized the renter the most, with premium hikes averaging $307 per year, or 19% more, CFA said. The firm did not immediately respond to a request for comment, but directed questions towards industry group the Insurance Information Institute.

But there were several double-digit percentage increases around the country. For example, Allstate charged renters in Tampa 19% more than it charged homeowners; Liberty Mutual charged Baltimore renters 23% more and 26% more in Newark; and Farmers Insurance charged renters in Louisville 47% more (or $768) than homeowners for a basic auto insurance policy.

Jim Lynch, chief actuary for the Insurance Information Institute, did not dispute CFA’s findings, but he said the advocacy group mischaracterized the results. He said data shows that renters are more likely to have accidents than owners, so the difference in rates are the result of “an actuarially justifiable variable.”

“The CFA has their spin on it,” he said. “They are really, really eager to call something a penalty. What I see is that homeowners (pay less). ..Most consumers would say if you present less risk you should pay a lower rate.”

He speculated that there are many reasons renters file more claims: as one example, many renters park in crowded surface lots, where the likelihood of accidents is higher than in homeowners’ driveways.

“It would be difficult to go to a homeowner and say, ‘We’re going to charge you the same rate because somebody else says that’s the way it ought to be.’ If I were that homeowner, I would say, ‘That’s not fair.’ But that’s how fairness operates in the insurance (industry),” Lynch said.

There were a couple of exceptions to the renters “penalty” in the CFA data.

“Geico was the only company tested that did not consider homeownership status in any of the 10 cities,” CFA said. “The only premium decrease for renters was found in Chicago, where Allstate lowered rates by 11% compared with premiums for homeowners.”

Also, state laws in California prohibit using homeownership status when setting premiums. When CFA tested rates in Oakland, California, it found that all companies charged the same premium to a good driver whether she owned or rented her home.

Many factors go into determining your car insurance rate, including your credit score. You can check your credit scores for free every month on Credit.com to see where you stand.