Report Released On Use Of Occupation And Education As Factors In Determining Rates And Underwriting
TALLAHASSEE (04/02/2007) - The Florida Office of Insurance Regulation (Office) today issued a report analyzing the insurance industry's use of occupation and education for the underwriting and rating of auto insurance policies. The report finds the use of these practices unintentionally harms minorities and low-income individuals in determining auto insurance premiums and insurance eligibility.
"Let me be perfectly clear," states Commissioner Kevin McCarty, "this practice is legal under current Florida law. However, similar to insurance companies' past use of credit scoring, this practice creates unintended effects that policymakers may find unacceptable." In 2003, the Florida Legislature passed Section 626.9741 severely limiting the use of credit scoring in insurance underwriting after this practice was also shown to disproportionately impact minorities and low-income individuals.
As early as 2004, the Office informed the industry that utilizing the factors of occupation and education for underwriting and rating was questionable, and the Office advised the industry to cease within one year. More recently, GEICO's high-profile use of education and occupation in auto insurance premium determination has garnered national attention. A St. Petersburg Times' article showed differences in education and occupation produced dramatically different premiums for individuals with similar driving records and vehicles.
The Office issued subpoenas to several company groups including those representing GEICO, Liberty Mutual and AIG to evaluate their use of occupation and education for rating and underwriting decisions. The Office held the public hearing in Tallahassee on February 9, 2007, and the Office's report is based on this hearing. All three insurance company groups utilizing these practices claimed they were doing so on a "color-blind" basis as they do not collect race or income information; Yet these companies openly admitted they have not researched the potential impact of their practices on vulnerable classes of consumers. Another concern is this practice could proliferate, as companies not using these factors may be at a competitive disadvantage, and forced to adopt these practices to effectively compete.