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Auto insurance rates rise by more than half for low-income families

For those already struggling to make a living, auto insurance doesnt make it any easier. A recent study found that its premiums are higher by 59 percent, or $681 per year, for those of lower income and economic status.

The Consumer Federation of America looked at the minimum limits liability premiums given online to men and women in 15 cities, from five of the nation's largest auto insurers -- GEICO, Progressive, Allstate, Farmers and State Farm. Five factors were examined for their effect on insurance price: education level, occupation, homeownership status, current possession of auto insurance and marital status.

The drivers used in the study all were 30 years old, licensed for 14 years, had no accidents or violations, drove a 2006 Toyota Camry and put 10,000 miles on it each year. And the same home address was used for each city.

The study uncovered that even given the same driving record and same address, those who had a high school degree and a blue-collar or hourly job, rented their home and were unmarried faced higher premiums 92 percent of the time, with about 20 percent paying more than double that of their higher-status counterparts. It also found that where the average premium for drivers of high economic status is $1,144, those of low economic status pay $1,825 a year.

Only three times, out of the 300 drivers tested, were those of lower economic status paying less than those of higher status, according to the study.

"Insurance companies are penalizing good drivers by hundreds and sometimes thousands of dollars each year based on economic and social status, and the end result is that the poor pay more, much more," said J. Robert Hunter, CFAs director of insurance, in the press release.

Other findings include that GEICO and Progressive charged the largest average percentage increases (92 percent for the former and 80 percent for the latter) to drivers of lower economic status, while Allstate and Farmers charged the largest average annual dollar increases ($915 for the former and $900 for the latter). State Farm charged smaller increases at 13 percent, or $217 per year, according to the press release.

Business Wire ran a statement from Property Casualty Insurers Association of America, which has almost 1,000 member companies, that acted as a rebuttal to the study's results.

The released statement argued that the study failed to grasp that all factors, including those studied, were used because they allowed for more accuracy in assessing the risks of insuring a driver. It also stated that these factors had been proved to increase accuracy, but exact examples of this proof were not given.

Dave Snyder, vice president of policy for Property Casualty Insurers Association of America, told Consumer Reports that pricing wasnt based on socioeconomic factors, but these risks of loss.

Factors such as the ones studied were used because relying solely on motor vehicle records would mean relying on inaccuracies, he said to Consumer Reports. For example, motor vehicle records don't mention violations that are legally dismissed when offenders attend traffic school, Consumer Reports noted.

"Consumers want insurance to be based on the likelihood of someone having an accident or filing a claim," the PCI said to Business Wire.

PCI also stated that CFA did not focus on many factors that can bring down insurance rates, such as miles driven and usage-based insurance.

The blog credit.com reported that Hunter and Doug Heller, a co-author of the study, admitted during a tele-press conference call that the study did not take into account how a customer's credit score would impact a premium. The study noted that when insurers ask for a social security number, as they typically do, it gives insurers a way to incorporate credit scores into a premium.

Social security numbers were not given to insurers in the study, so the credit scoring was instead set at the default setting for all policies.

But Heller told credit.com that if the study had included the credit scores, the discrepancies would have been "a lot worse. The study documents cited a 2015 Consumer Reports finding that premiums were significantly higher for those with low credit scores.



On Deck Capital Offers Several Free Call Options On Future Returns

Introduction

On June 9, OnDeck (NYSE: ONDK) hosted its first analyst day. The company believes that online lending is shifting away from an initial boom phase, which was characterized by a stampede of VC funding and new origination. It sees 2016 as the transition period to a shakeout phase, one with less VC funding and more rational behavior. It made a strong case that between its hybrid funding model, leading credit scoring technology, and diversified acquisition channels, it is ideally situated to maintain its leadership position in SMB online lending. The company has a well thought out strategy for growing the business, becoming profitable, and can pull a number of levers to expand its scope. During the post-Brexit sell-off, the stock once again began to hover around book value, a valuation that simply does not give any credit for the potential runway of available opportunity for the company. Moreover, it completely fails to account for growth in areas outside of the companys core US-based SMB lending operations. These include the companys OnDeck as a Service offering and international expansion.

OnDeck as a Service (ODaaS)

ONDKs emerging ODaas initiative is an outsourced technology offering that enables partners (banks and other large lending institutions) to leverage ONDKs underwriting capabilities and expertise in technology, data, and analytics. The initiative has the potential to become a large, profitable, and complementary business for ONDK over time. Instead of becoming purely a financial company, ONDK can pivot towards a fee-based software model. ONDKs first-mover advantage in and concentrated investment in SMB lending and its significant technology/data assets make it a logical partner for banks/other institutions looking to capitalize on the shift of lending to online channels. As such, it will prove helpful in highlighting the companys strategic value to the future of SMB lending. Over time, ONDK has the potential to become the technological infrastructure that underpins SMB lending. It can effectively remove all balance-sheet and capital market risk, becoming a purely technology firm. Of course, this is a long ways off, but it is free optionality for investors near current prices.



WIRED Money 2016 Startup Stage: credit scoring and insurance

What will be the next fintech breakthrough? On June 23, 16 startups from around the world gathered at the British Museum in London to pitch on the WIRED Money Startup Stage.

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Here's why low income families struggle to pay auto insurance

For those already struggling to make a living, auto insurance doesnt make it any easier. A recent study found that its premiums are higher by 59 percent, or $681 per year, for those of lower income and economic status.

The Consumer Federation of America looked at the minimum limits liability premiums given online to men and women in 15 cities, from five of the nations largest auto insurers GEICO, Progressive, Allstate, Farmers and State Farm. Five factors were examined for their effect on insurance price: education level, occupation, homeownership status, current possession of auto insurance and marital status.

The drivers used in the study all were 30 years old, licensed for 14 years, had no accidents or violations, drove a 2006 Toyota Camry and put 10,000 miles on it each year. And the same home address was used for each city.

The study uncovered that even given the same driving record and same address, those who had a high school degree and a blue-collar or hourly job, rented their home and were unmarried faced higher premiums 92 percent of the time, with about 20 percent paying more than double that of their higher-status counterparts. It also found that where the average premium for drivers of high economic status is $1,144, those of low economic status pay $1,825 a year.

Only three times, out of the 300 drivers tested, were those of lower economic status paying less than those of higher status, according to the study.

Insurance companies are penalizing good drivers by hundreds and sometimes thousands of dollars each year based on economic and social status, and the end result is that the poor pay more, much more, said J. Robert Hunter, CFAs director of insurance, in the press release.

Other findings include that GEICO and Progressive charged the largest average percentage increases (92 percent for the former and 80 percent for the latter) to drivers of lower economic status, while Allstate and Farmers charged the largest average annual dollar increases ($915 for the former and $900 for the latter). State Farm charged smaller increases at 13 percent, or $217 per year, according to the press release.

Business Wire ran a statement from Property Casualty Insurers Association of America, which has almost 1,000 member companies, that acted as a rebuttal to the studys results.

The released statement argued that the study failed to grasp that all factors, including those studied, were used because they allowed for more accuracy in assessing the risks of insuring a driver. It also stated that these factors had been proved to increase accuracy, but exact examples of this proof were not given.

Dave Snyder, vice president of policy for Property Casualty Insurers Association of America, told Consumer Reports that pricing wasnt based on socioeconomic factors, but these risks of loss.

Factors such as the ones studied were used because relying solely on motor vehicle records would mean relying on inaccuracies, he said to Consumer Reports. For example, motor vehicle records dont mention violations that are legally dismissed when offenders attend traffic school, Consumer Reports noted.

Consumers want insurance to be based on the likelihood of someone having an accident or filing a claim, the PCI said to Business Wire.

PCI also stated that CFA did not focus on many factors that can bring down insurance rates, such as miles driven and usage-based insurance.

The blog credit.com reported that Hunter and Doug Heller, a co-author of the study, admitted during a tele-press conference call that the study did not take into account how a customers credit score would impact a premium. The study noted that when insurers ask for a social security number, as they typically do, it gives insurers a way to incorporate credit scores into a premium.

Social security numbers were not given to insurers in the study, so the credit scoring was instead set at the default setting for all policies.

But Heller told credit.com that if the study had included the credit scores, the discrepancies would have been a lot worse. The study documents cited a 2015 Consumer Reports finding that premiums were significantly higher for those with low credit scores.

Contact the reporter at This email address is being protected from spambots. You need JavaScript enabled to view it.; Or follow her on Twitter at @Sarahsonofander.



More home-insurance companies are looking at your credit

United Property and Casualty made credit scoring mandatory for its insurance applicants in 2015, documents show, while Sawgrass Mutual introduced it last year as well.

More carriers are using it compared to 10 or 15 years ago, said Jeff Grady, president and CEO of the Florida Association of Insurance Agents. Agents accept it but dont necessarily like it because they have to explain it to their clients.

Cooper City resident Michelle Goldenberg said she received a renewal notice recently with a premium increase of nearly $1,000. Her agent suggested she might be able to lower that cost by allowing her insurer to run a credit check.

She declined, saying she was recently a victim of identity theft and hasnt filed an insurance claim since after Hurricane Wilma a decade ago. I said, No way are you going to do a credit check so you can raise my rates again. If Im able to pay off my house, I must be doing OK.