Florida Officials: Education, Job in Rating ‘Unintentionally’ Harms Minorities

Results of a report on the factoring of occupation and education for underwriting and rating of auto insurance policies show that while the practices “unintentionally harm minorities and low-income individuals” in determining premiums and eligibility, they are nonetheless legal.

“Let me be perfectly clear – this practice is legal under current Florida law,” Insurance Commissioner Kevin McCarty said. “However, similar to insurance companies’ past use of credit scoring, this practice creates unintended effects that policymakers may find unacceptable.”

In 2003, the Florida Legislature passed Section 626.9741 severely limiting the use of credit scoring in insurance underwriting after this practice was also shown to disproportionately impact minorities and low-income individuals.

As early as 2004, the OIR informed the industry that utilizing the factors of occupation and education for underwriting and rating was questionable, and they advised the industry to cease within one year.

Florida Chief Financial Officer, Alex Sink said, “Just because something might be legal doesn’t make it right. I don’t see how someone’s job reflects on how they drive or what rates they should pay. Rates should be fair and based only on actual risk.”

The OIR issued subpoenas to several company groups including those representing GEICO, Liberty Mutual and AIG to evaluate their use of occupation and education for rating and underwriting decisions.

OIR’s report is based on a Feb. 9 public hearing held in Tallahassee.

All three insurance company groups utilizing these practices claimed they were doing so on a “color-blind” basis as they do not collect race or income information. Yet these companies also acknowledged that they have not researched the potential impact of their practices on vulnerable classes of consumers.

According to state officials, another concern is this practice could proliferate, as companies not using these factors may be at a competitive disadvantage, and forced to adopt these practices to effectively compete.

Insurance Consumer Advocate Bob Milligan also weighed-in on the issue. “I will support the efforts of the Office of Insurance Regulation as they move to fix this egregious situation through quick legislative action and appropriate rulemaking,” he said.

A copy of the report is available at http://www.floir.com/pdf/OCCRateRpt.pdf.

Source: Florida Office of Insurance Regulation