Filed Under:Agent Broker, Coverage Issues

N.Y. to auto insurers: Don't use education or occupation in setting rates

Department of Financial Services proposes regulation to stop “unfairly discriminatory” practice.

Insurers use a variety of risk factors in setting auto premiums. N.Y. State wants them to stop using education level and occupational status. (Photo: Shutterstock)
Insurers use a variety of risk factors in setting auto premiums. N.Y. State wants them to stop using education level and occupational status. (Photo: Shutterstock)

On May 16, Gov. Andrew M. Cuomo announced a proposed regulation to protect New Yorkers from what he sees as excessive and unfairly discriminatory auto insurance rates.

The Department of Financial Services (DFS) regulation, issued after an extensive investigation, would prohibit insurers from using an individual’s occupational status or educational level as factors in setting rates, unless the insurer demonstrates to the satisfaction of the Superintendent of Financial Services that the use of these factors does not result in rates that are “unfairly discriminatory.”

New consumer protection

“This new protection cracks down on this unfair practice that soaks drivers for not having a college degree or a high-paying job,” Gov. Cuomo said. “These metrics are discriminatory, have no relationship to how good a driver you are and should not be used as an excuse to overcharge New Yorkers.”

As explained in Cuomo’s announcement, the use of education and occupation in determining insurance rates can penalize drivers without college degrees or who work in low-wage jobs or industries. The result is that drivers with higher education and income often pay less for auto insurance with no evidence that they are better drivers. The multi-year investigation by DFS revealed that education and occupation were used without a clear demonstration of the required relationship between these factors and driving ability.

“Under this proposed regulation, auto insurers cannot use educational and occupational status in their insurance underwriting, unless they can clearly demonstrate a plausible relationship to the risk of loss.” Financial Services Superintendent Maria T. Vullo said. “Requiring insurers to openly justify the use of education and occupation data in setting rates will ensure that New Yorkers are not being charged higher rates due to factors outside their control as drivers.”

Some, but not all, insurers in New York use an individual’s education level or occupational status in establishing initial tier placement, the DFS investigation revealed. As a result, DFS believes that classes of insureds have been placed in less favorably rated tiers, which may lead to higher premiums, without sufficient actuarial support that an individual’s education level, occupational status, or both, related to the individual’s driving ability or habits in such a way that the insurer would have a different risk of loss.

‘Excessive, inadequate or unfairly discriminatory’

The proposed regulation prohibits an insurer from using drivers’ occupational status or education level as a factor in initial tier placement, unless the insurer demonstrates, to the satisfaction of the Superintendent of Financial Services, that its use of occupational status or educational level attained in initial tier placement or tier movement does not result in a rate that violates insurance law provisions ensuring the public welfare by regulating insurance rates so they are not excessive, inadequate, or unfairly discriminatory.

The proposed regulation, which is subject to a 45-day notice and public comment period following the May 17, 2017, publication in the New York State register, provides 180 days for insurers that had been using education level and occupational status in initial tier placement and tier movement to amend their multi-tier rating programs and tier movement.

A copy of the proposed regulation can be found on the N.Y. State Department of Financial Services website.

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