Insurers taken to task for ignoring drivers’ mileage when setting rates

By Bill Holloway

A recently released study from the Consumer Federation of America (CFA) has found that insurers rarely give low-mileage drivers much of a break on their rates despite the fact that mileage driven is one of the best predictors of insurance claims, and most consumers feel that basing rates on mileage is fair.

The CFA study based its findings on insurance quotes for the minimum state-required liability coverage for a 30-year old female driver with a perfect driving record living in ten different major cities. The data was collected from websites of the nation’s five largest insurance companies.  Every quote was based on the same driver characteristics except for annual mileage driven, which was either 5,000 or 20,000 miles per year.

Outside of California, where insurers are required to use mileage as a factor when setting rates, three of the top five insurers always or often quoted the same premium for the 5,000-mile driver as for the 20,000-mile driver.

Because higher mileage drivers spend more time on highways, where crashes are less likely, the likelihood of an insurance claim does not double when a driver doubles her mileage. However, numerous studies have pointed to mileage driven as one of the biggest factors influencing claims.

Insurance companies’ failure to reward low-mileage drivers with reduced premiums is particularly burdensome for low-income drivers, who have consistently been shown to drive far fewer miles than drivers with higher incomes.

Insurers claim that their failure to factor mileage into insurance premiums is due to their difficulty in measuring it. However, CFA researcher Robert Hunter claims this is just an excuse: “Getting this information is relatively easy, as some insurers have demonstrated. And how many insurers are carefully checking on factors like education and occupation that they are increasingly using in their rate-making?”

More pressure from states to use mileage as a key factor in setting rates could both improve equity in insurance premiums and nudge companies toward better driver risk assessments.

Bill Holloway is a Transportation Policy Analyst at SSTI.