State to Weigh Insurance Profiting

By Randy Diamond, The Palm Beach Post, Fla.

Feb. 9--Geico's reptilian mascot "Gecko" seems to be everywhere with his promise that the insurance company can save its customers money on their auto insurance policies.

But what the cute green lizard isn't saying is that he's really talking to people with pedigrees.

Educated professionals are entitled to savings at Geico, Florida and the country's fourth-largest auto insurer. Those with a high school diploma or less who work in areas Geico considers less desirable -- including assistants, postal clerks, stock clerks -- are charged higher rates.

In some cases, they are charged much higher rates.

Rate quotes on Geico's Web site show that a 51-year-old engineer with a Ph.D. residing in West Palm Beach with a perfect driving record would be charged $528.83 for a six-month policy. However, if that person were a reporter in West Palm Beach with the same driving record but just a bachelor's degree, the rate would go up to $727.82.

Faring much worse would be a West Palm Beach cleaning person who never finished high school, even though he too had a perfect driving record. Geico would charge that 51-year-old $908.63, or 42 percent more than the engineer.

Florida's insurance regulators will hold a hearing today in Tallahassee on the practice of using education and occupation in determining rates. Geico developed the practice, but other insurers, such as Liberty Mutual Group and the American International Group, also use it.

Allstate Corp. (NYSE: ALL, $61.53) has begun to use the practice in four states, but not Florida. It offers customers with preferred education and occupation levels a 10 percent discount off auto premiums, spokesman Ryan Priest said.

The hearing in Tallahassee will be the first time regulators in any state have publicly tackled the issue. Regulators are asking whether it's fair to charge two people with the same driving record vastly different rates because one is an unskilled worker and the other a professional. They maintain that affects poor people disproportionately.

"This could become a big trend if it is not stopped,'' said Steve Parton, general counsel to the state's Office of Insurance Regulation. "It's somewhat sinister, the notion that you have the less economically able people subsidizing the rates of the wealthy." In another sense it is unfair to competitors, he continued. Companies that use education and occupation as factors are able to undercut competitors on price for the more wealthy motorist by overcharging the lower-income driver. The other companies are being put at a disadvantage, according to Parton.

The insurance industry contends that allowing insurers to use different factors to fine-tune prices means the best prices are offered for each individual based on risk, said Joe Annotti, a spokesman for Property Casualty Insurers Association of America. He said customers are free to shop for another carrier.

Geico's filing with Florida regulators rates architects, accountants, airplane pilots, lawyers and teachers as among the most desirable occupation holders to insure. On the low end of the rating scale is long-haul drivers, delivery people, unskilled and semi-skilled blue collar workers, minimally skilled clerks, postal clerks and stock clerks.

Florida Insurance Commissioner Kevin McCarty said he believes Geico's practices have a negative precedent: life insurance companies charging blacks higher insurance rates than whites. The practice was outlawed in the mid-1960s.

McCarty said a Maryland study at the time showed that after the question of one's race was deleted from insurance applications, some companies started asking about occupation.

"I am concerned that the use of occupational and educational rating (for auto insurance) is nothing more than a proxy for race-based premiums," he said.

McCarty said regulators do not have the authority to ban the practice but that he expects to make a recommendation on a course of action following the hearing.

Geico spokeswoman Janice Minshall said the insurer uses more than 20 factors in determining the price of a policy, including driving record, age, gender, accident history and vehicle type. "Allowing companies to use a wide range of underwriting and rating tools promotes market competition and choice and ultimately drives down the cost of insurance," she said.

But while Geico uses a variety of factors, its key indicator is education and occupation, according to a report by the Consumer Federation of America. It said the weighting is so pronounced that a person with only a high school diploma, no matter what his driving record, is not eligible for Geico's best insurance rates.

In a letter to state insurance officials in April, Geico's senior counsel, Bonny Gordon, said the company's rates are based on actuarial experience. Gordon provided national claims data to regulators that showed claims paid declined with the change in education and job classifications.

The Office of Insurance Regulation's Parton said the reason for the disparity is simple: Those with money often elect to pay damage to fix their cars from accidents themselves, avoiding a possible rate spike.

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