What Car Insurers Can't Ask You When Setting Your Rates

By Leslie ScismFeaturesDow Jones Newswires

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.

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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)