Another potentially illegal auto-insurance system is posing risks, hitting low-income and minority drivers harder than other buyers. This latest concern comes from a state that has already faced similar controversies over racial disparities in auto insurance: Indiana.

Many of the state’s auto-insurance policies have provisions that allow drivers to waive auto coverage or pay a lower monthly premium. In exchange, the insurance companies will use a network of different providers of auto insurance, known as Insurance. Each provider offers different coverage and features, and the insurance companies then make their final decisions.

Insurance policies

One auto insurer, Insurance, exclusively offers auto insurance to low-income individuals. Insurance will only sell to customers who carry Indiana’s Family and Children’s Health Insurance Plan (Families). That insurance provides premiums of $1.60 to $3 per person per month.

But just one in five Indiana auto insurance policies offers a subsidy like this one. For example, for auto insurance bought from Nationwide Insurance, the insurer only offers discounts for low-income individuals who have purchased the car and obtained a loan.

Similar rules apply to several of Indiana’s auto insurance carriers, including Progressive Insurance and Auto-Owners Insurance Company, two of the biggest auto insurance providers in the state.

Discovered loop holes.

Insurance companies can charge more to low-income drivers, but they can waive the premium if the driver is renting a car and willing to purchase their insurance there, or insuring the vehicle themselves. Otherwise, they must buy insurance that’s specific to the car they own.

These provisions and fees are supposed to help make auto insurance more affordable. But in reality, they do just the opposite. Customers whose incomes fall below certain limits will pay more for auto insurance than those whose incomes are higher.

Auto insurers do this through multiple methods, including using the insurance agency networks of individual insurance companies. That means customers who are already covered by different insurance providers will also end up being part of the insurance company’s network.

Auto insurers set the premiums that car owners pay and charge these different amounts to each driver to determine who gets charged a reduced rate.

And the insurance companies can choose to cover only certain kinds of cars. Insurance, for example, only sells insurance to any car that is a 2012 or newer model.

Only a few types of vehicles are subject to this auto-buyer provision in Indiana. Insurance is the only one that offers this insurance exclusively to low-income individuals. Auto insurers can also make this kind of coverage part of their policies.

Insurance providers who do this may be hitting low-income drivers with unfair increases in auto insurance rates.