N.J. Legislator Moves To Limit GEICO Criteria

Provoked by word that GEICO uses education and job levels to rate auto risks, an influential New Jersey legislator has introduced a measure to bar all insurers' use of such standards.

Assemblyman Neil Cohen, D-Union, said he introduced a bill yesterday (A2819) that would bar the use of education and occupation as rating factors in automobile insurance underwriting. The bill would also bar the collection of that information for application or renewal, he added.

Mr. Cohen, who chairs the Assembly Financial Institutions and Insurance Committee, took his action in response to a newspaper report last week that GEICO uses an individual's education and job status in its underwriting of risk.

Use of such criteria, the Newark Star-Ledger article said, can dramatically alter the price consumers pay for auto insurance from the carrier.

Mr. Cohen said that Sen. Nia Gill, D-Essex, plans to introduce a bill similar to his in the state Senate.

"It is unrelated to someone's ability to drive and their filing a claim in the future," said Mr. Cohen. "What if you drop out of college to feed your family, or what if you can't afford to go to college because you have to work. Why should these people be punished?"

"It's just a mechanism so that insurance companies can charge more money," he stated.

Mr. Cohen said every time insurers come up with a rating criteria they create a situation that allows them to charge a premium difference. "It used to be, 'What's your driving record?' That's changed. And these underwriting criteria are being used to produce more revenue."

He said that if this information were used in any other circumstance it would be found unconstitutional.

Compounding the issue is the Chevy Chase, Md.-based company's silence. He said the company has not commented on the issue.

Mr. Cohen said he has seen no studies from the company or the state's Department of Insurance and Banking to justify the use of the information in underwriting. However, he indicated he would be open to reconsidering his position based on the facts.

Mr. Cohen said the bill is expected to be sent to the Financial Institutions and Insurance committee within seven days.

LeRoy A. Boison Jr., consulting actuary for Pinnacle Actuarial Resources Inc. in Garden City, N.Y., noted that carriers are seeking to refine their classifications, looking at nontraditional rating elements such as occupation and education. But he pointed out that the classifications are part of multiple variables used in underwriting an individual risk.

"Carriers test as many variables as they can and refine it all as much as they can to get data," said Mr. Boison.

"Everyone is searching for a better mouse trap," he said of the variables insurers use to rate policyholders.

John Rollins, an actuary with Citizens Property Insurance Corporation in Tallahassee, Fla., said he has never seen a system where education and occupation dominate the underwriting of a policy. Underwriting guidelines, he said, are too complex to allow one or two factors such as education or employment to dominate all risk factors.

"Rating classification is discriminatory," noted Mr. Boison. "The question is, is it fair discrimination," he said, adding that the viability of the plan must be proven to the state insurance department before it is implemented.

GEICO responded to questions about its rating with an e-mail saying it evaluates more than two dozen potential risk factors in underwriting applicants and the factors were approved by the state's insurance department. The state department of insurance has noted GEICO is not the only company using these factors and said it has also seen data supporting the use of these factors.