What Car Insurers Can't Ask You When Setting Your Rates
December 13 2017 - 8:29AM
Dow Jones News
By Leslie Scism
New York financial regulators have banned the use of education
and occupation as factors in setting auto-insurance premiums,
pushing back on insurers' efforts to use increasingly personal data
in determining rates people pay for their policies.
New York Financial Services Superintendent Maria T. Vullo is
expected to disclose Wednesday that her department has made the
decision after wrapping up an investigation of the
long-controversial matter, people familiar with the matter said.
The state also will disclose that Allstate Corp. and Liberty Mutual
Insurance have agreed to eliminate their use of these factors with
New Yorkers, the people said.
Ms. Vullo maintains that insurers' use of education and
occupation penalizes drivers without college degrees or who work in
low-wage jobs or industries. The department had studied the matter
for several years, and she made it a priority since taking office
in early 2016, requiring insurers to submit material detailing how
the factors play into their pricing and can be justified.
Insurers contend that the factors are actuarially justified,
helpful in predicting the likelihood of an insurance loss and allow
for more-accurate underwriting and pricing.
The state's ban on the factors applies only to insurers
operating in New York, but could embolden consumer groups
representing lower-income people to seek to reopen the same debate
in many other states that permit their use.
Ms. Vullo also has objected to use of credit histories, but
those have been permissible by New York statute since 2004. As a
result, Ms. Vullo is unable to use her regulatory powers to roll
back the use, the people said.
Reviews by several state insurance departments over the years
have found the difference in rates paid based on education,
occupation and credit factors can be in the single- to double-digit
percentages.
Before the 1990s, most car insurers used factors like age,
gender, vehicle type, motor-violations history and estimated miles
to be driven as major determinants in how much a policyholder pays.
Some car insurers were founded specifically to sell to people in
designated professions. Berkshire Hathaway Inc.'s Geico unit, for
instance, started in the 1930s as Government Employees Insurance
Co. to sell to federal workers and military officers.
As data science became increasingly common in the 1990s in
financial services, more car and home insurers adopted use of
education, occupation and credit histories.
Even though the reasons can come down to hypothesizing,
actuaries believe knowing an applicant's job, education and credit
history helps them price more precisely. Their math shows
professionals such as military officers, teachers, engineers,
accountants and dentists have lower claims costs and therefore
should pay lower rates.
Unskilled workers such as day-care employees and stock clerks
have a higher risk, according to some actuaries.
Some actuaries speculate that people with a cautious nature are
attracted to certain jobs, and those traits show up in driving.
Others think people in more lucrative jobs are more likely to
absorb the cost of minor accidents themselves.
Insurers have presented it as a fairness issue, saying that
drivers less likely to incur losses should pay less for insurance
than drivers more likely to incur losses.
But Ms. Vullo's department decided that insurers hadn't clearly
demonstrated a required relationship between these factors and
driving ability, the people said.
Consumer advocates have argued that the practice can make
insurance more costly to those who can least afford it and yet are
required to buy it under laws mandating liability coverage. They
want insurers to use broad pools for determining car rates.
Write to Leslie Scism at leslie.scism@wsj.com
(END) Dow Jones Newswires
December 13, 2017 08:14 ET (13:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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