Insurance rates shouldn't be based on pay, education
By ATIMES EDITORIAL
Published April 18, 2007
When Robert Trigaux, the St. Petersburg Times business editor, tried an experiment and filled out an online application for a price quote for auto insurance from Geico, the results were shocking and troubling. In two separate tries he used exactly the same criteria except for the inquirer's occupation and level of education. The guy without a high school diploma and a janitor's job was given a quote that was $440 per year more than the Ph.D. computer executive.
This is wrong. The use of educational attainment and occupation in rate-setting is unfair and should be outlawed. Such factors burden those who are least able to afford it. Florida has a serious uninsured motorist problem and this practice undoubtedly contributes to it.
Auto insurance companies are defending the practice, claiming that it is actuarially sound. Even if that is true, it shouldn't matter. A recent report by the Florida Office of Insurance Regulation found that using education and occupation in rate-setting disproportionately harms minorities and low-income individuals. That should be reason enough for the industry to stop using the criteria. But since such corporate responsibility is rare, it appears that the Legislature will have to ban the practice.
Kevin McCarty, Florida's insurance commissioner, points out that the Legislature dealt with a similar practice in 2003 when it barred the use of credit scoring in insurance underwriting. That practice also highly correlated with race and income level and had a disproportionate impact on minorities and the poor.
The public policy interest in nondiscrimination is clear and overriding.
Warnings to the auto insurance industry in 2004 by OIR that it should eliminate occupation and education as criteria in rate-setting have not been uniformly heeded. The agency needs express legislative authority to be effective, and lawmakers should grant it that power.
Proxies for race and poverty should have no place on an actuarial table. If that means spreading risk to a wider customer base, it is a small price to pay for fundamental fairness.