CONSIDER TWO 30-year-old women: Each is single, has an unblemished driving record and drives to work in a 2002 Toyota Camry insured by Geico General Insurance Co.
One woman pays $798 annually for her automobile insurance policy; the other pays 70 percent more - $1,359. The 70 percent difference in cost stems from a single factor - where the two women live. One lives in Timonium, two miles outside the Baltimore Beltway in Baltimore County. The other lives about nine miles to the south, in the city neighborhood of Charles Village.
The example, which was developed for the Abell Foundation's newly released report, "Actuarial Discrimination," is theoretical. But for drivers in Baltimore City, such numbers are part of a distressing financial reality: Automobile insurance is far more expensive for Baltimore City residents on average than for other Maryland drivers.
The ramifications of this reach beyond the financial burden it puts on those who choose to live in the city. Consider what it does to respect for the law. Every day, thousands of Baltimoreans who do not have auto insurance perform an illegal act when they start up their cars and drive to work, simply because they cannot afford state-mandated insurance. And consider what it does to those who do pay for their insurance. Every insured driver in the state underwrites the cost of these uninsured drivers through the price of their policies.
It may well make sense to allow insurance companies to charge those who live in rural areas - where there are fewer cars and fewer accidents - less than those in congested areas with heavily traveled roads. But does it make sense that a driver who lives in the middle of Baltimore pays, on average, nearly 60 percent more for automobile insurance than that same driver would pay living only a few miles north, in Baltimore County? That city driver pays between 80 percent and 100 percent more than one living in fast-developing Carroll County.
These higher premiums, while alarming, do not reflect the complete cost of insurance for many Baltimore drivers who are hit with extra charges because of sub-par credit ratings, or who pay for expensive private financing arrangements forced on them by state law.
Paying significantly more for auto insurance is a major obstacle for low-income families seeking financial self-sufficiency. Public transportation fails to meet the needs of many city residents, particularly those who commute to jobs in the suburbs. For them, driving is the only practical way to hold down a job.
Yet, many Baltimore residents simply cannot afford the cost of insurance. State data produced in 2001 suggest that the average premium in some low-income areas of Baltimore City is equivalent to 10 percent of the average family's household income - far too much for many families to consider.
The bottom line is not surprising. According to the insurance industry, an estimated one out of every four drivers in Baltimore does not have insurance. That means that all insured drivers are paying [See Insure, 2f] [Insure, from Page 1f] extra to protect themselves in case of a collision with an uninsured driver.
This is not a new phenomenon. An industry-backed report from the late 1980s showed that among major cities, Baltimore had the highest rate of uninsured-motorist claims in the nation.
Why are insurance costs in the city so high? Because of a combination of factors that state policy-makers have ignored for too long.
While common sense would suggest that a person's driving record, annual miles driven and experience behind the wheel should be the determining factors in establishing insurance premiums, the reality is that a more important factor is where that driver lives, a pricing mechanism known as territorial rating.
In Maryland, insurers are free to establish their own territories to set premiums, and they tend to relegate all or much of Baltimore City into its own rating territory.
Insurers defend territorial rating by noting that premiums within a territory are based on the number and size of claims made by drivers who live there, whether or not those drivers have good driving and claim records.
History shows that Baltimore residents, on average, file more claims than do residents of other areas. So the insurers are allowed to charge city residents more, just as they are allowed to charge young males more because, as a group, they have more claims.
Borders could shift
But there is nothing sacrosanct about any company's territories; indeed, the state could be carved into any number of territorial arrangements that ignore political boundaries.