Zip Code Bias: How your Zip Code, not Address, Impacts Car Insurance Rates
It's no secret there are hundreds of different factors that go into determining your car insurance rate.
You probably know about most of them; the car you drive, your driving history, your age, sex, marital status, how often you drive, how far you drive, your credit score, and where you live, to name a few.
But it's not your street, or even the city you live in, that determines a portion of risk factor. Instead, it’s your zip code.
And that means you could be paying hundreds of dollars more for car insurance than your neighbor across the street, just because you border an area deemed “risky”.
"Every single company has tons of employees that sit around, gather data, and then analyze it trying to figure out what their risk is for a potential client," says Debbie Larson, who owns Brew City Insurance in South Milwaukee. "If you take a certain zip code, and unfortunately, the driving habits of the people that live in that zip code aren't as good, there's more accidents, then the rates will be higher."
Brew City Insurance is an independent agency, meaning they work with 18 different companies to find the best rate for their customers. Larson says in many cases, those rates can vary by hundreds, if not thousands of dollars, depending on the company.
"Every company has a sweet spot," she says. "The type of client that they're looking to insure."
We filled out dozens of mock quotes online with companies like Progressive, Geico, and All-State, and found a common theme among all of them. Driver's on Milwaukee's north-side are asked to pay 10-50% more than other parts of the city. That’s because higher crime and accident totals make drivers there a bigger risk for insurance companies.
But zip code boundaries don't correlate directly with cities, meaning homeowner’s on the outskirts of Milwaukee could be punished for living in a certain zip code. We ran quotes for homes on zip code boundaries in Wauwatosa, Brown Deer, and Milwaukee, and found differences as high as 20% between neighbors living less than 200 feet from each other.
“Insurance is a pool, and everybody puts their money into that pool, and the company spreads the risk between everybody, and if the risk is higher in that area, unfortunately the costs are going to be higher,” says Larson.
In most cases, the differences wouldn’t warrant someone moving to a new zip code. Larson says the majority of companies place much more stock in your driving history and car, and reward drivers for good habits even in high-risk areas.
She recommends using an independent agency to shop for the best deal, and says drivers should never accept the first quote they fill out on-line. Even for a good driver living in a low-risk zip code, the differences between companies are regularly in the hundreds of dollars.
“If I don’t own a home, and I have a bad driving record, it’s really not going to matter what zip code I live in,” says Larson.