Did a consumer group go too far in decrying the rating policies of the nation's fourth largest auto insurer?
Last month, the Consumer Federation of America accused Geico of adopting unfair rating practices by basing auto insurance eligibility and premiums on educational background and occupations of consumers. The group claimed that because of this, low-income consumers and minorities were being discriminated against by being forced to pay higher rates.
As an example, the group said that a factory worker without a four-year college degree in New Orleans would pay almost 91 percent more for coverage than an attorney with a professional degree but the same qualifications and driving record. Nationally, CFA says the average price difference is over 40 percent.
"Geico is pulling an underwriting sleight-of-hand that allows it to skirt existing prohibitions on the use of income and race to determine insurance rates and eligibility," said J. Robert Hunter, director of insurance for CFA and a former insurance commissioner of Texas. "Educational attainment and occupation are directly linked to income, which cannot be used in determining insurance eligibility or rates because of its serious adverse impact on lower income and minority consumers."
However, the Property Casualty Insurers Association of America, which is comprised of 1,000 companies whose members write more than 50 percent of the country's auto insurance policies, asserted that some insurers have used these factors for many years with the approval of state regulators.
"Insurers are constantly looking for ways to ensure that there is a close relationship between a consumer's premium and the potential risk of loss that they take on," said Joseph Annotti, senior vice president of public affairs for PCI. "Driving experience, past loss history, age, gender, and marital status are widely accepted rating factors that have been approved by state regulators because they are accurate predictors of future losses. Demographic factors, such as occupation, operate in exactly the same manner."
If restrictions on actuarially justified rating and underwriting factors are enforced, he said, it could harm the insurance marketplace by stifling competition and innovation. It also could force consumers to pay more for insurance.
A class-action lawsuit regarding the matter was filed against Geico in the United States District Court for the District of Minnesota in early April.
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