The Star-Ledger

Geico's Two Rates: White-Collar And Blue-Collar

Auto insurer charges more to consumers with less formal education and job status

The Star-Ledger — Monday, February 27, 2006

Star-Ledger Staff

Geico's return to New Jersey was called a watershed moment in the state's effort to cut the nation's highest auto insurance rates.

In fact, its August 2004 decision to end a 28-year walkout over what the company saw as excessive regulations "was like having Hollywood arrive," said auto insurance lobbyist Magdalena Padilla.

But consumer groups and some lawmakers are angry about a little-known provision in the deal that brought back Geico – now the state's No. 4 insurer.

The insurer uses a person's education and job status to figure out how much to charge. In short, blue-collar workers and those with less formal education pay more.

"It is really unconscionable," said Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, a consumer coalition. "I would love to know who they are marketing themselves to? Are they writing letters to doctors and lawyers? Everybody should be putting down that they are Rhodes scholars."

Assemblyman Neil Cohen (D-Union), chairman of the Assembly Financial Institutions and Insurance Committee, said he is drafting legislation to ban the practice. He said Sen. Nia Gill (D-Essex), chairman of the Senate Commerce Committee, will co-sponsor it.

"It is discriminatory and it has no relationship to how somebody drives," Cohen said. "None of that should be considered."

A document called "Geico Auto Group Guide to Company Placement" dated Feb. 3, 2004, shows how the company views a person's job and education.

Accountants, architects, lawyers, teachers, engineers and dentists are listed as occupations that "have exhibited superior loss experience in the past."

The worst risks mentioned include clerks, long haul drivers, route men, and "unskilled and semi-skilled blue- and gray-collar workers."

As for education, "Risks who have achieved at least a high school diploma or its equivalent are more favorable than those without a high school education. Bachelors, masters and other advanced degrees are considered most favorable," the document says.

Such factors can make a huge difference in rates.

Using the company's Web site, The Star-Ledger found a 30-year-old single male from Newark would pay $1,686 a year if he is a lawyer with a master's degree.

But the same man living at the same address, driving the same car and having the same coverage would pay $2,880 if he reported being a janitor with only a high school degree.

Geico officials did not respond to several requests for comment.

Jaimee Gilmartin, spokeswoman for the state Department of Banking and Insurance, said the state is more flexible as it moves to a less regulated market and recruits new businesses in an effort to drive overall rates lower.

She called Geico's dramatic entry into the market "a good thing for New Jersey drivers. It's a good thing for the New Jersey economy."

Gilmartin said using occupation and education to determine rates is allowed by law if a company proves they correlate with losses.

"They were able to justify it. We didn't have a reason to say 'No, you can't,'" Gilmartin said. "I don't know that we've gotten a single question or complaint with regard to use of education or occupation."

Geico was the first in the state to use occupation and education as rating factors, Gilmartin said. Since then, Liberty Mutual, another top-10 firm; N.J. Skylands, a medium-sized firm; Electric, a small firm; and Amex Assurance, a new firm, have sought to use them, though not necessarily the same way as Geico, she said.

In addition, some companies insure only certain groups. USAA serves only active and retired military and Secret Service officials and their relatives.

Industry officials defended Geico's pricing policy.

Lynn Knauf of the Property Casualty Insurers Association of America said it is "based on some credible statistics." And Ken Tappen, an analyst with AM Best, which tracks industry trends, said these rating factors may be "the wave of the future."

"The advent of computers has prompted companies to become far more elaborate in how they estimate the risk of losses from various groups of drivers," he said.

Eric Poe, vice president of operations for NJ Cure, which insures about 50,000, said companies that don't want to use jobs and education to determine rates may do that to compete with Geico, which covers 475,000 vehicles here.

Concerns about occupation and education echo complaints about the industry's recent move to use credit histories in pricing. Critics say this hurts low-income drivers.

Robert Hunter, insurance director for the Consumer Federation of America, said Geico's rating strategy is "clearly a marketing mechanism that is targeted on rich people. It's very troubling."

Salowe-Kaye said such policies "all come down to the same thing: discrimination." She said, like banks, insurers should be required to record the race of each customer and regularly disclose their sales patterns "to make sure there's no redlining."

In 1994, the District of Columbia launched an investigation after Geico employees said the company discriminated against lower-income neighborhoods by imposing higher auto and homeowner policy prices on those with blue-collar jobs. The company adamantly denied the charges and filed a lawsuit challenging the district's investigative power.

Lily Qi, spokeswoman for the district's Department of Insurance Securities and Banking, said the investigation was never completed. Geico ended up selling off its homeowners insurance business in the district, Qi said.

New Jersey drivers paid an average of $1,188 per car in 2003 – the most recent statistics available. Drivers have received $420 million in discounts since a new deregulation law was enacted in June of that year, Gilmartin said.

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