The Color of Your Collar, and Other Ways Geico Rates Your Risk
Ever wonder how your auto insurer decides what to charge you for coverage, or even whether to offer you a policy at all?
Many people do, especially when they open up their annual or semiannual premium statement and see the amount they owe.
But insurers' risk assessments and pricing strategies are among the industry's most closely guarded secrets. While the companies are typically required to disclose their rates -- and the rating manuals used to set them -- to regulators, who sometimes make them public, the more workaday guidelines their agents and salespeople use are rarely visible to the public and sometimes not even to regulators.
Thus the recent discovery among regulatory filings in New Jersey of an internal guide used by Geico Corp. to help its salespeople decide whether to offer insurance to an applicant -- and if so which of the four Geico subsidiaries should provide the coverage -- provides an intriguing peek into one insurer's ways of sorting its customers.
Geico's subsidiaries all have similar names -- Government Employees Insurance Co., which is where Geico comes from; Geico General Insurance Co.; Geico Indemnity Co. and Geico Casualty Co. -- so customers are not always aware of which one is providing their policy.
But the company a customer is assigned to can mean hundreds, occasionally thousands, of dollars' difference in the premium that will be asked. This is because the first two on that list cover "preferred" risks -- motorists the company figures will be the safest drivers -- and charge lower premiums, while the other two handle drivers who look riskier and charge them more accordingly.
The guide emphasizes that it contains "criteria for placement among our four companies," and that these criteria "are just guides and not rules."
The guide looks at an applicant from three perspectives: driving record, personal characteristics and the vehicles to be insured. It appears to seek information beyond a basic application and does not address many standard questions such as miles driven, type of car and gender of driver.
Driving record is mostly what you might expect -- accidents, tickets and other violations, and license suspensions and revocations. But there are some nuances: Recent accidents are considered less favorable than those more than a year old; for families or other applicants with more than one driver, the guide says, "if there is more than one accident, view the risk more favorably if the accidents are spread among the drivers, rather than one driver having multiple accidents."
Interestingly, "multiple not at fault accidents are considered an unfavorable factor." On the other hand, "accidents caused by defective Bridgestone/Firestone tires that were involved in product recalls are not to be considered for underwriting or rating purposes."
Likewise, "multiple theft/vandalism incidents are considered unfavorable," and recent ones more so than old ones.
Also, "risks with more than one very serious conviction (drink/drugs, hit and run, racing, felony, vehicular manslaughter/assault) are not written."