GEICO, America’s fourth largest car insurer, promises big savings if you switch your auto policy, but the lowest rates aren’t reserved for the unemployed.
The insurer uses a controversial practice to help determine auto insurance premiums by taking into account a customer’s job and education level in addition to more traditional factors such as driving record, miles traveled and the vehicle’s make and model.
While GEICO (Stock Quote: BRK.A) officials have told state insurance regulators that education and occupation are just two of the 20 factors they consider in setting rates, its own web site shows they play a major role.
2 Good Drivers, 2 Different Rates
The GEICO website calculates a 25 year old, unemployed woman with a high school education living in Staten Island, New York would pay $1,173.70 to insure her 2004 Jeep Cherokee for a six month policy with GEICO. That’s more than 2.5 times the $438.50 premium a 25 year old female psychologist with an advanced degree would be charged for insuring the same vehicle.
In both cases, the unemployed woman and the psychologist had long-standing perfect driving records and were purchasing full coverage, including liability protection from lawsuits of up to $300,000.
In Fort Lauderdale, Florida an unemployed 49 year old high school graduate would pay $677.10 for six months to insure a 2007 Ford Taurus (Stock Quote: F). That compared to $497.64 for a bank manager with a bachelor’s degree.
GEICO underwriting documents filed with Florida insurance officials show nationally GEICO charges the highest rates to motorists with a high school diploma or less or to those who have jobs the insurer considers less desirable including postal clerks, stock clerks and unskilled workers.
“Motorists who are least able to afford the cost of auto insurance end up paying the most under GEICO’s pricing plan,” says Eric Poe, Vice President of Operations at NJ Cure, a New Jersey-based auto insurer.
GEICO officials directed a reporter to a trade group, the Property Casualty Insurers Association of America. Alex Hageli, the association’s personal lines manager, says GEICO has data showing a statistical link between education/ occupation and a customer’s likelihood of filing an insurance claim. He said fine tuning the rate process is actually an advantage to motorists. “It gives drivers a customized premium.”
GEICO is not the only insurer to use education and occupation, but it is the largest with nine million customers. Allstate (Stock Quote: ALL), the nation’s second largest insurer, uses education and occupation to determine rates in four states.
Officials of another major insurer, Liberty Mutual (Stock Quote: SAF), testified at a Florida hearing in 2007 that unemployed persons applying for insurance may end up in its higher priced Liberty Insurance unit solely because they do not have a job. Liberty officials said they consider education and joblessness in determining rates, but not occupation. Another insurer that considers education levels is 21st Century insurance.
Hageli said he wouldn’t be surprised if more insurers adopt similar rating factors in the future because it gives them additional ways to calculate a premium.
Poe of NJ Cure says that potential trend concerns him: “We don’t want to compete on those grounds, but if the practice is not banned, GEICO will have an unfair advantage."
Poe says GEICO and other insurers use education and occupation to offer their best rates to more affluent. Those customers are more profitable because they can afford to buy larger limits of coverage and can be cross-sold other lines of insurance, he said.
Tom Zutell, a spokesman for Florida Insurance Commissioner Kevin McCarty, says the Commissioner is particularly concerned that people who lost their jobs because of corporate downsizing will end up paying higher rates.
Insurance experts say luckily for consumers there are still many insurers who don’t use education and occupation for rate setting. But opponents of the practice have been fighting a losing battle. Legislation to stop it has been beaten back in both New Jersey and Florida at the insurance industry’s urging.
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