| WASHINGTON, July 22
WASHINGTON, July 22 Several large U.S. auto
insurance companies use education levels and occupation to set
rates, effectively pricing some low- and moderate-income earners
out of the market, according to a report by the Consumer
Federation of America.
The report, released on Monday, looked at premiums set by
the 10 largest auto insurance companies in 10 urban areas across
the United States.
The CFA plugged information about a fictional person into
each company's website to get a quote, changing only education
level and occupation to see the effect on rates. Five of the
insurance companies were found to collect such information.
In some cases, premiums for minimum-liability coverage
exceeded $2000 and in one instance, in Baltimore, it was more
than $4000, from Travelers Insurance.
"The quoted prices, especially the nine exceeding $2000,
show that insurers either are overcharging lower-income
consumers or are not interested in serving them," Bob Hunter,
the CFA's director of insurance, said in a statement.
Officials at Travelers were not immediately available to
The report found that Geico, part of the Berkshire Hathaway
group of companies, charges more in six of the analyzed
markets for a factory worker with a high school diploma than for
a factory supervisor with a college degree. The rate could be as
much as 45 percent more in Seattle or as low as 20 percent more
Progressive Corp., which had the second-highest
difference in premiums, was found to charge the factory worker
33 percent more in Baltimore and 8 percent more in Oakland,
Since education and occupation have been found to correlate
with race, the CFA said the practice of using such factors is
However, Robert Hartwig, an economist and president of the
Insurance Information Institute, an industry group representing
insurance companies, said dozens of factors go into determining
insurance rates, each correlating with risk.
"Why would an insurer collect data that is not useful?"
Hartwig asked. "These factors are used for one reason and one
reason only, and that's to ascertain risk."
Common practices that the CFA agreed should be used for
setting rates include a person's past driving record and miles
driven. Location and type of car are also often used because
they can increase the cost of a claim.
Factors such as age, gender and credit ratings are also used
because they have been found to correlate with the frequency or
size of claims, according to the III's website.
But the CFA said that while such factors may indicate
correlation, they do not necessarily indicate causation.
Hartwig defended the use of correlation, saying it was what
insurers and actuaries typically use because causation might
never be known.
Hartwig also said the use of so many different models was a
sign of a competitive market. A market in which all companies
used the same variables would result in uniform pricing, he
Using a survey conducted by market research firm ORC
International, the CFA said about two-thirds of Americans think
the use of education and occupation to set insurance rates is
The organization said the Federal Insurance Office, an
agency born out of the 2010 Dodd-Frank financial regulatory
reform law, might be able to change how insurers determine
Insurance regulation is usually at the state level. But
Stephen Brobeck, executive director at the CFA, suggested it is
not a big enough concern for state officials and said he hoped
attention from consumer advocacy groups would change that.
"Many of the insurance commissioners and the departments are
not sensitive enough to the needs of the insured, particularly
for low- and moderate-income drivers in their states," Brobeck
said on a conference call.
He added that the CFA also opposes the use of credit ratings
because it discriminates against low-income earners.
Auto insurance is required to own and operate a vehicle in
all U.S. states except New Hampshire.