Geico to Stop Using Education and Occupation in Setting Auto Rates in New York
March 12 2018 - 07:26PM
Dow Jones News
By Leslie Scism
Berkshire Hathaway Inc's Geico unit agreed to halt the use of
education and occupation as factors in setting auto-insurance
premiums in New York.
New York Financial Services Superintendent Maria T. Vullo's
office said that the giant insurer would comply with the state's
move late last year to ban what her department has concluded is an
unfair practice that can drive up the cost of insurance for people
who can least afford it. Geico could have challenged the state's
ban in court, but has chosen not to.
Geico joins Allstate Corp. and Liberty Mutual Insurance in
overhauling its methodology in the state. Those two other insurers
reached agreements late last year with the superintendent.
Together, Geico, Allstate and Liberty Mutual provide coverage to
nearly half of the private passenger auto-insurance market in New
York.
A representative for Geico couldn't immediately be reached for
comment.
The use of education and occupation as factors in pricing --
along with credit histories -- has been contentious for years, with
insurers using education and occupation alongside many other
variables, including age, gender, driving history, vehicle type and
estimated miles to be driven, to help set rates.
Many insurers contend that education level and occupation are
actuarially justified in predicting the likelihood of an insurance
loss. Property Casualty Insurers Association of America has said in
recent weeks that New York's regulation "could have the opposite
effect of what is intended -- resulting in many consumers paying
more for auto insurance," such as police officers and teachers.
The state's ban on the factors applies only to car insurers
operating in New York, but regulatory moves in the state are
watched throughout the U.S. Some consumer groups representing
low-income Americans are hoping it will reopen a national debate on
what data should be used in setting rates and what should be
prohibited.
Before the 1990s, most car insurers used factors like age,
gender, vehicle type, motor-violations history and estimated miles
to be driven as major determinants in how much a policyholder
pays.
Credit histories then were added by many to the mix. Some
insurers have always used occupation, as some car insurers were
founded specifically to sell to people in designated professions.
Geico, for instance, started in the 1930s as Government Employees
Insurance Co. to sell to federal workers and military officers.
Some in the industry say math shows that professionals such as
military officers, teachers, engineers, accountants and dentists
have lower claims costs and therefore should pay lower rates.
Unskilled workers such as day-care employees and stock clerks have
a higher risk, according to some actuaries.
New York disagrees.
"The use of education and occupation in determine insurance
rates unfairly penalizes drivers without college degrees or who
work in low-wage jobs or industries without having a rational
relationship to driving," Ms. Vullo said in a statement Monday.
"The result is that drivers with higher education and income pay
less for auto insurance with no rationale evidence that they are
better drivers."
Ms. Vullo also has objected to use of credit histories, but
those have been permissible by New York statute since 2004.
Write to Leslie Scism at leslie.scism@wsj.com
(END) Dow Jones Newswires
March 12, 2018 19:11 ET (23:11 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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