California May Limit Using Jobs, School to Determine Insurance Rates?

California is proposing to restrict auto insurance practices that regulators say benefit those who have more money, more education and are white.

The state Department of Insurance proposed regulations Monday that would prohibit insurance companies from using so-called “affinity groups” to discriminate based on educational attainment or income level, among other factors.

The bulk of drivers in the groups already fall into lower income categories, responded one insurance association, while another warned that the change could have the unintended effect of harming working-class Californians. The American Property Casualty Insurance Association said similar discount programs are offered in 48 states.

How Affinity Groups Can Help You Find Cheap Car Insurance

What’s an affinity group?

Several insurance companies have made a business out of marketing themselves to affinity groups. These groups can be employees of a certain company or members of professional, business and alumni associations, according to the Insurance Information Institute, an industry organization. Members of an affinity group who sign up with a specific car insurance company will receive a discount.

Affinity groups give insurers access to a pool of potential customers, who often are part of a demographic that the insurer judges to be “less risky” and therefore eligible for better rates. The organization may get a referral fee.

Geico, The Hartford, Liberty Mutual, MetLife and Nationwide are among the auto insurance companies that provide affinity-based policies. Geico’s affinity partners, for example, include alumni associations, colleges, business groups, educational organizations, fraternities and sororities, honor societies, military organizations and recreational groups. Members of groups such as the American Horticultural Therapy Association, Mensa and USA Water Ski can all get affinity discounts through the company.

You could save hundreds

The main reason you would consider buying insurance through a group is to find cheap car insurance. But how much can you save? Here are a couple of examples:

• Among people who saved money by switching to a MetLife group car insurance policy in 2014, the average rate reduction was $500, according to the company.
• The Hartford says its AARP group auto insurance plan saved the average new member $404 in 2014.

In addition to savings, insurers sometimes provide extra perks to people who buy policies through a group.

The Hartford’s AARP policy, for instance, includes such benefits as lifetime renewability and a rate that’s locked in for 12 months. Insurance companies also may have a dedicated customer service phone number for group members, or may offer to bill you through payroll deduction if you’re in an employer-sponsored group.

What to keep in mind

Affinity group discounts aren’t available everywhere because of some state insurance regulations. They can also controversial among consumer advocates. The California group Consumer Watchdog is waging a campaign against affinity-based insurance pricing in the state. It maintains that these discounts violate the state’s voter-approved requirement that insurers base rates solely on factors substantially related to the chance of a person making claims. They would argue that water skiing, for example, does not indicate that you’re a better driver.

Finally, just because you qualify for affinity-based rates with a company doesn’t mean that it offers the best deal. Another insurer’s regular rates may still be lower. It always pays to shop around for car insurance quotes. https://www.nerdwallet.com/blog/insurance/auto/drivers-can-find-cheap-car-insurance-through-a-group/