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Geico's Risk Criteria Challenged
Geico Chairman Tony Nicely, with gecko mascot, in Trenton in 2004. A N.J. competitor has joined with a consumer group in calling for a ban on using education in assessing risk.
(By Curt Hudson -- Bloomberg News)
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Geico, which has been vigorously advertising low prices, said, "Every criterion, including occupation and education, used by Geico reflects its actual loss experience nationwide over many decades. Geico has justified its use of these criteria with insurance regulators throughout the country for many years."
Geico, the nation's fourth-largest car insurance company, is a subsidiary of Berkshire Hathaway Inc.
Former D.C. insurance commissioner Lawrence H. Mirel, now at Wiley Rein & Fielding here, said carriers constantly seek to find ways to assess risk accurately.
"The heart of insurance is underwriting. You want to make the best prediction you can about who is going to have a claim, and if you're good about that you make money, if not you lose money," he said.
Some other carriers said they use education or occupation along with other criteria, while others said they do not.
Industry officials said that auto insurance is both tightly regulated and highly competitive, so that practices that have a pernicious impact are likely to be stopped, and in any case, with hundreds of carriers in the market, motorists have plenty of places to shop.
"Automobile insurance is a highly competitive market where consumers who don't want to deal with a company for whatever reason have lots of other companies to choose from," said David Snyder, vice president and assistant general counsel at the American Insurance Association, a trade group in the District.
State Farm, the nation's largest auto insurer, does not use occupation and education to determine rates. "We are always looking at variables so we can price our product as accurately as we can, but at the moment those two are not among the ones we are using," said company spokesman Dick Luedke. "To the extent that companies are using different variables, that's good news to the consumers."
Allstate doesn't ask prospective customers about their education, but it does consider occupational discounts in several states. Actuaries, architects, editors, legislators, mail carriers and speech therapists, for example, receive a 10 percent discount while carpenters, clergy, insurance adjusters, plumbers, police officers, teachers, and locksmiths get a 5 percent reduction in their rates.
"Our data shows that these professions incur fewer losses" and the discounts are an innovative way to provide consumers with competitively priced insurance coverage, said spokesman Mike Siemienas.
For Liberty Mutual Group, occupation is a factor in setting rates in some states, said spokesman Glenn Greenberg. "We use no single criterion to determine the price," and any data used are based on "the likelihood of risk," Greenberg said.
