Geico Denies Job, Education Rating Bias

The letter, signed by J. Robert Hunter, CFA director of insurance, said the practice should be barred by state regulators. It is based on information obtained by the CFA and NJ CURE, a nonprofit insurer. The letter seeks to have state regulators put pressure on GEICO or act through their authority to stop the practice before the system gets in general use, CFA said.

"Throughout the letter it is alleged that GEICO uses education and/or occupation solely to underwrite or rate risks," Geico responded in a letter signed by Hank Nayden, vice president and legislative counsel. The letter was sent to Alessandro A. Iuppa, Maine insurance commissioner and president of the NAIC.

"This is absolutely untrue," Mr. Nayden said. "In fact, GEICO uses several dozen factors in conjunction to underwrite and to rate. These characteristics are not solely used to determine the rate or company placement.

"Let me be clear. Despite what this letter alleges, neither education nor occupation is ever solely used to determine someone's rate. Persons of all educational levels and occupations are offered insurance at our best rate based on all criteria."

Mr. Nayden's letter to Mr. Iuppa was prompted by Mr. Hunter's letter to the NAIC in which Mr. Hunter charged that the use of this information "results in an unjustifiable increase in insurance rates for many lower income and minority consumers."

Assemblyman Cohen's bill, introduced March 6, 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 an application or a renewal, he added.

In its letter, the CFA urged the commissioners to act before competitive pressures lead to broader use of these harmful criteria.

"We have recently discovered that Liberty Mutual Insurance has also adopted educational attainment as a method of underwriting and rating," Mr. Hunter said in the letter.

Allstate has begun to use such factors in four states, he said. "If an insurer sees competitors doing this and believes the competitors will take away their richer clients, to whom they could sell home, life, boat insurance and banking products, the insurer may feel forced to adopt this approach.

"We urge you to prohibit this practice before it becomes more widespread," Mr. Hunter added.

Commenting on the issue, Elizabeth Northrup, director of public affairs at the American Insurance Association, noted that New Jersey, where the issue seems hottest, has turned into a "really competitive marketplace over the last few years." She said that while GEICO might be using these criteria other companies are certainly not, and consumers should shop around.

Geico is not a member of AIA, she said.

Mr. Hunter said he based his letter on documents CFA has uncovered showing that GEICO, the nation's fourth-largest auto insurer, has adopted rating methods and underwriting guidelines in 44 states that directly base rates and eligibility for auto insurance solely upon education and occupation.

In the letter to the NAIC, CFA and NJ CURE noted that insurance commissioners often do not collect or review underwriting guides, so it is likely that these methods have been overlooked.

In his response, Mr. Nayden said on behalf of Geico that Mr. Hunter's comments are "not only a full frontal attack on competitive markets and consumer choice but also contain an offensive attempt to link fundamentally fair and actuarially sound industry practices with invidious discrimination. The opinions espoused in this letter are wrong from every perspective–public policy, legal, and from the perspective of competition and consumer choice."

In his letter to Mr. Iuppa, Mr. Nayden said that Geico's growth "across all occupations and educational levels gives the lie to any assertion that certain individuals are being harmed by our underwriting practices."

"If individuals from certain occupations and educational levels could not get competitive rates from GEICO, they would be buying insurance from our competitors," Mr. Nayden said. "GEICO advertises and markets to every group throughout the country and no one is ineligible for any of our companies. Our growth in every region and in every sector of the economy is evidence that GEICO is achieving its goal to make auto insurance more affordable for everyone."