Geico's Risk Criteria Challenged
Insurer Denies That Education and Occupation Are Used to Discriminate

By Albert B. Crenshaw and Caroline E. Mayer
Washington Post Staff Writers
Tuesday, March 21, 2006

According to an internal Geico document, the auto insurer uses drivers' levels of education and occupations in setting insurance rates.

As a result, Consumer Federation of America argued, blue-collar workers with relatively low levels of education sometimes are charged almost twice as much as better-educated professionals, based on those criteria.

Geico said in a statement that it uses many factors in setting rates and that allegations that education and occupation are being used as the sole criterion are "absolutely untrue."

The document cited by the consumer group and a Geico competitor raises long-standing questions about which criteria insurance companies may use as proper gauges of risk and which improperly discriminate against poor people and minorities.

Insurers, consumer advocates, regulators and politicians have been struggling for years over such issues, including the use of credit scores in assessing risk. The use of credit scores is permissible in about 30 states but continues to be debated.

Yesterday, CFA called on insurance regulators to bar insurers from basing decisions on whether to sell insurance to someone and what rates to charge solely on the applicant's education and income, calling the practice "an underwriting sleight of hand" to avoid existing prohibitions on using race and other criteria.

"No single criterion is ever used to determine a customer's rate," Geico said in a statement late yesterday. "Persons of all educational levels and occupations are offered insurance at our best rate based on a variety of criteria. Income or race based criteria never has a role in underwriting or pricing. These allegations are patently false and intentionally divisive."

The consumer group was joined by New Jersey Citizens United Reciprocal Exchange, a nonprofit insurer and Geico competitor in that state. They based their call for regulatory action on an internal Geico document filed with regulators in New Jersey, which makes more documents public than other states. The document included a guide used by Geico's underwriters to decide which of the company's four subsidiary companies will insure an applicant and to determine what price an applicant will be offered.

The guide, in addition to listing factors such as driving history, age, mileage and vehicle type, includes a section dividing drivers into eight groups based on their education and occupation. Considered "more favorable" are professionals with college degrees and graduate students. "Least favorable" are "minimally skilled clerks, assistants, stock clerks and postal clerks," as well as long-haul drivers and "unskilled and semiskilled blue and gray collar workers."

"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," said J. Robert Hunter, CFA's director of insurance and a former Texas insurance commissioner. According to the U.S. Census Bureau, 89.4 percent of non-Hispanic whites 25 and older held a high school diploma in 2003. By comparison, 80 percent of blacks and 57 percent of Hispanics were high school graduates.

CFA said it sought rate quotations from Geico's Web site for motorists in locations in all 50 states and the District, entering data for drivers who were identical except for education and occupation. The experiment produced higher rates for the blue-collar driver in all but six locations (one of which was Fairfax County).

The differences ranged from 11.12 percent in Chicago to 124.72 percent in New Orleans.

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.