That "not-at-fault" collision could still hike your premium

Were you recently rear-ended at a red light by a driver who was texting? If so, you probably got a double dose of bad luck, according to a just-published study by the Consumer Federation of America (CFA).

It showed that drivers in major cities nationwide end up paying more -- as much as $400 in Queens, New York -- when they apply for insurance after they’ve suffered a fender-bender, even if it’s the other motorist’s fault. And that’s in addition to the already substantial premium insurers charge for living in an urban area and having a “moderate” income, the study claimed.

“It’s another 10 percent for people who already got a sizable whack,” said the CFA’s insurance expert Doug Heller.

So it should come as no surprise that insurance industry representatives immediately attacked the study as “skewed.”

“They threw a lot of things at the wall,” said Bob Passmore, assistant vice president with the Property Casualty Insurers Association of America (PCI), which represents 1,000 car insurers that write more than 40 percent of the nation’s automotive policy premiums.

“Assigning fault in an accident is rarely a zero-sum process where one driver is 100 percent at-fault, whereas the other driver is zero percent at-fault,” said Loretta Worters, a spokeswoman for the Insurance Information Institute, which represents the industry.

But the news wasn’t entirely negative for motorists or the insurance industry. According to the CFA, while Progressive Insurance (PGR) used the no-fault penalty “most aggressively,” charging almost a 17 percent average penalty for not-at-fault accidents, the largest U.S. auto insurer, State Farm, doesn’t assess any markup for motorists who weren’t responsible when their cars were hit.

The study, which ranked only five of the top car insurers, included Berkshire Hathaway-owned GEICO (BRK.A) with a 14 percent increase, Farmers at 11 percent and Allstate (ALL) at around 5 percent.

And there was some good news: California and Oklahoma don’t allow car insurers to increase premiums for motorists who weren’t responsible for an accident, said the CFA.

But other states and urban areas weren’t so lucky. While Queens was the highest, Baltimore ranked second on the “hit parade” at $258, and Minneapolis came in third at $213. At the bottom of the CFA’s list of cities where insurers charged more was Atlanta, where they boosted premiums by only $60.

While lower-income drivers fared worse, with a 9.6 percent hike after a not-at-fault collision, upper-income motorists still experienced a 6.6 percent markup on their premiums.

CFA Director of Insurance Robert Hunter said any increase in premium wasn’t fair if the accident isn’t your fault. As a former insurance commissioner of Texas and the industry’s severest critic, Hunter said charging people for accidents that weren’t their fault “is not only unfair, but discourages them from filing legitimate claims” and using “the policy they’ve already paid for.” 

The CFA survey trolled the websites of the major insurers and used two fictional women motorists to get quotes. They had similar ages, cars and driving records, but differed in likely income.

Insurers don’t ask for income, but factors such as job and home ownership provide the clues, so one applicant was a bank executive with a master’s degree, while the other was a bank teller with a high school education. Not surprisingly, the bank executive made out better, both with and without the fender bender.

The PCI’s Passmore said the survey was imprecise because of “the lack of specifics,” such as the imaginary bank teller not having had car insurance for the past six months -- a red flag, particularly when referring to an accident. The vague question of “not your fault” on the application didn’t address how severe the accident had been or what were the costs.

Worters also said the survey was flawed because it didn’t go far enough. 

“Underwriting a new auto insurance policy requires the collection of much more information than is gathered through an auto insurer’s website,” she said.

But Passmore and Worters didn’t challenge the fact that car insurers often charge more, even if an accident may not be your fault.

So what, if anything, can you do about it? “Shop around,” said the CFA’s Hunter. “Ask the insurance agent or his company whether they charge you more if someone careens into you. And if you are abused, complain to your state insurance department. Two states already ban this and a little push from consumers might encourage other states to do the same.”

  • Ed Leefeldt

    Ed Leefeldt is an award-winning investigative and business journalist who has worked for Reuters, Bloomberg and Dow Jones, and contributed to the Wall Street Journal and the New York Times. He is also the author of The Woman Who Rode the Wind, a novel about early flight.