Florida officials: Education, job rating ‘unintentionally’ harms minorities

A Florida report on the use of occupation and education in underwriting and rating auto insurance asserts that while the practices “unintentionally harm minorities and low-income individuals,” 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.”

Insurers blasted the report and urged officials not to restrict their ability to use the criteria.

In 2004, the OIR informed the industry that utilizing 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 reviewed GEICO, Liberty Mutual and AIG to evaluate their use of occupation and education for rating and underwriting. All three insurers 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 on vulnerable classes of consumers.

State officials said they are concerned that this practice could proliferate as other insurers are forced to use them to effectively compete.

Insurance Consumer Advocate Bob Milligan weighed-in. “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.

Insurers’ response

Florida insurers hammered the OIR, calling its claims that the use of these factors unfairly affects lower income and minority consumers “entirely bogus and unsubstantiated.”

The Florida Insurance Council maintains that there is no unfair bias in the use of education and occupation. “While critics argue that certain levels of educational attainment or occupation are associated with certain income levels, they fail to associate risk or cost with education or occupation,” the FIC stated in a release. “Once risk is associated, insurers have found that occupation and education are not only actuarially valid predictors of risk, but that they are not unfairly discriminatory.”

FIC cited a study last year by the Maryland Insurance Admin-istration, which it says found that the use of education and occupation is reasonable.

Insurers pointed out that no insurer uses education or occupation as the only factors. Instead, they use as many as 20 different ones including territory, gender, make of car, driving record, miles driven, location, driving experience and others.

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