Insurance companies used to be able to consider New York state drivers’ occupation and level of education when setting auto insurance rates.
State regulators say the practice punished lower-educated workers in lower-paying jobs, without proof that those drivers were a higher risk behind the wheel.
The state Department of Financial Services implemented the change last year, and it has filtered down to customers as their policies have been renewed.
Some drivers – mainly those with more advanced educations and what are perceived by insurers to be low-risk jobs – are paying more than they were before. Some of the increases approached 10 percent.
And others are paying less.
Maria T. Vullo, the state Department of Financial Services superintendent, said the change stemmed from a “multiyear investigation” that found some insurers were using a person’s education level to help determine what to charge that person, without establishing a clear link between amount of education and driving ability.
Liberty Mutual, Allstate, GEICO and Progressive all reached agreements with the state to stop using education and occupation as factors in setting rates. Those four agencies provide coverage to more than half of the state’s private passenger auto insurance market, according to state regulators.
“The use of education and occupation in determining insurance rates unfairly penalizes drivers without college degrees or who work in low-wage jobs or industries without having a rational relationship to driving,” Vullo said last year, after GEICO reached an agreement with the agency.
The New York Insurance Association opposed the change. The group’s president, Ellen Melchionni, contends the state is “traveling down a dangerous path by introducing subjectivity into insurance.”
Ellen Melchionni of the New York Insurance Association. (provided photo)
Melchionni said insurance companies use a variety of factors – including age, gender, driving history, vehicle type and how many miles are driven – to determine risk and to set the price of customers’ insurance policies.
She said insurers “demonstrate great caution and objectivity in how insurance policies are written.
“Relying on subjectivity and limiting underwriting factors can penalize drivers and drive up the cost of insurance,” she said.
Melchionni contends a person’s education and occupation have been “mathematically proven to be correlated with risk.”
GEICO, for instance, started in business as the Government Employees Insurance Co., selling policies only to federal workers and military officers in the belief that drivers with those occupations would file fewer claims.
Likewise, some insurance experts believe that unskilled workers, from retail clerks and parking lot attendants to health and child care aides, can have a higher risk.
Melchinonni said New Jersey and Maryland have analyzed the use of education and occupation and determined that “eliminating certain underwriting factors would only result in increased rates for drivers.”
A decade ago, the New Jersey Department of Banking and Insurance released a report that found using occupation and education in setting insurance rates was valid. “An analysis of the rates of multiple insurers demonstrates that the use of these factors [education and occupation] has not created higher overall premiums for drivers with lesser occupational and educational attainment,” the report said in one of its conclusions.
But New York State sees the issue differently, and insurance companies are adapting.
Merchants Insurance Group, which is based in Buffalo, said it wasn’t impacted by the changes made by the state Department of Financial Services. Merchants has never used a driver’s education in setting its pricing, and stopped using occupation as a factor a few years ago, said Sam LaDuca, Merchants’ vice president of product management and actuarial.
Sam LaDuca of Merchants Insurance Group. (Merchants photo)
Merchants used to collect data on drivers’ occupations and began using that data about a decade ago. Drivers’ occupations could be considered a risk factor based on the time of day they might driving, or on-the-job stress that carries over to driving habits, LaDuca said. “You’d see some interesting results.”
But Merchants found it a headache to verify drivers’ occupations, not to mention the fact that drivers’ jobs can change. So Merchants stopped using that factor in 2013. Plus, Merchants sells its products through independent agents, who weren’t thrilled to have to collect information about customers’ occupations, LaDuca said.
Merchants found it was more effective to analyze factors like someone’s prior driving record, age, driving experience, and where a vehicle is kept, which indicates where most of the driving will take place, he said.
“We do a lot of analysis on all the risk factors we use and how they correlate with claim frequencies,” he said. “It’s amazing how consistent the results generally are over time.”
As for whether to use a driver’s amount of education as a factor, “it never really bubbled to the surface as an underwriting or pricing factor that we should explore,” LaDuca said.
Collecting and verifying that type of information can be difficult, and Merchants decided it had other factors to draw upon that are more insightful, anyway, LaDuca said.
So drivers might wonder: Given all the factors insurers look at, how can they keep their premiums as low as possible?
“Don’t get into accidents and don’t get tickets,” LaDuca said. “Drive carefully.”