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New Jersey's former insurance commissioner said it will be difficult to attract national automobile insurance carriers to Massachusetts without allowing them to use such socioeconomic factors as credit history, homeownership, occupation, or education.
"Most companies won't come into a state unless they can write policies the same way they do everywhere else," said Holly C. Bakke.
Massachusetts Insurance Commissioner Nonnie S. Burnes hasn't ruled out the use of socioeconomic factors as the state moves to competition, but said she will view with "extreme skepticism" any rate request that includes them because of the potential for discrimination.
Warren Buffett, the chairman of Berkshire Hathaway Inc., the parent company of Geico Corp., told the Globe recently that a prohibition on socioeconomic rating factors wouldn't necessarily keep the company out of Massachusetts but he said the factors are crucial to setting equitable rates. Progressive Corp. is urging Burnes to allow the use of socioeconomic factors.
Insurance companies say credit history, homeownership, occupation, and education, used in conjunction with a variety of other indicators like driving record, age, mileage, and garage location, are good indicators statistically of a driver's likelihood of filing a claim.
Beyond the statistics, the theory is that someone who manages their credit well, owns a home, graduated from college, or holds down a white-collar job is more responsible and drives more safely.
Liberty Mutual Group of Boston, one of the leading advocates for competition in Massachusetts, uses education and credit history in New Jersey as part of its risk assessment. The company isn't pressing Burnes to use those factors in Massachusetts, but said they help gauge risk better and price a product more accurately, which generally benefits good drivers.
"We should be allowed to use them. It makes the market more efficient," said Himanshu Patel, a senior vice president at Liberty.
Remberto Perez, owner of the Royale Agency in Newark, said he was initially concerned the socioeconomic factors would lead to discrimination. "But it hasn't," he said. "It's been positive."
Flora Kent of Clifton, N.J., who doesn't have a college degree, isn't so sure. She said her rates started rising with Geico and then jumped dramatically to $180 a month after she was involved in an accident. She switched to NJCure Inc., a company in Princeton that doesn't use socioeconomic factors in setting rates, and saw her premium drop by $80 a month.
In a report released in late February, New Jersey Citizen Action compiled more than 400 rate quotes using Geico's website and said the average quote for someone without a bachelor's degree was 19 percent higher than the average quote for someone with the degree. Similarly, the average rate quote for someone with a nonprofessional job was 27 percent higher than the average quote for someone with a professional job.
Geico officials say Citizen Action overstated the impact of occupation and education on rates. They also said that 40 percent of the customers of the Geico subsidiary with the lowest rates in New Jersey are lower-education and nonprofessional workers.
Steven M. Goldman, commissioner of the New Jersey Division of Banking and Insurance, said his office is monitoring the use of socioeconomic factors, but notes consumers may still "shop the market" for carriers that don't use them.
NJCure, in fact, has a billboard on the Turnpike promising "rates based on driving records, not credit scores."
The Boston Globe copyright 2007 by The New York Times