Insurance companies quoting "astonishing" higher rates to lower income applicants based on credit scores but having identical driving records.

Credit scoring, used in Florida in part to determine insurance rates is being challenged by Florida Insurance Commissioner Kevin McCarty. Seems a blind study has shown a fictional blue collar vs white collar driver with identical records were given a 15% higher quote in Florida and a 40% higher quote nationally. The only difference was occupation and educational levels but the applicants were placed in high risk pools and not even allowed "preferred" pricing because low income profiles indicate lower credit scores.



From the Daytona Beach News Journal

EDITORIAL

January 30, 2007

A logical leap

Job, schooling shouldn't affect insurance


For years, Florida has prohibited automobile insurance companies from discriminating on the basis of race, income or other factors that have no bearing on a person's trustworthiness.

For years, insurance companies have tried to weasel around those restrictions.

And they've been successful -- astonishingly so, given the straightforward nature of the anti-discrimination rules. The most onerous provision allows Florida insurers to base rates partially on credit scores. Because low-income people are far less likely to have established credit (or to have troubled credit histories) this provision ensures that they pay more.

The most agile mind would have trouble establishing a cause-and-effect relationship between paying Visa bills late and crashing your car into a light pole. But that stretch looks easier, compared to the practice uncovered last year by the Consumer Federation of America, and under investigation now by Florida Insurance Commissioner Kevin McCarty.

Last year, the federation conducted an investigation, comparing rates for fictional drivers whose history, vehicle and other factors were nearly identical. The only variants the group used were occupation and education level.

The differences were astonishing. Nationally, rate quotes for blue-collar workers averaged 40 percent higher than quotes provided for highly educated professionals. The gap in Florida was less, but a blue-collar price quote still came in $112 higher for a six-month policy -- a gap of more than 15 percent.

The federation targeted GEICO, a company that advertises car insurance nationwide, for its study. The rate differences were largely due to the fact that GEICO, like many insurance companies, divides its business among sub-corporations. Blue-collar workers -- even with spotless driving records -- were not eligible to be covered by GEICO's "preferred" company and were shuffled into subsidiaries with higher base rate structures.

GEICO isn't alone. Other companies -- Allstate, Progressive and Liberty Mutual -- also use some form of occupational and educational rating.

Companies argue that there's a numerical correlation between occupation, education level and the number of claims filed. In fact, they may be able to demonstrate a statistical coincidence -- but it's hard to imagine how the companies could prove a solid, causative relationship between driving skill and education or occupation. Particularly one that doesn't trace back to the forbidden factors of race or income.

The federation makes a compelling case that these policies do constitute illegal discrimination. Black and Hispanic Floridians are less likely to have advanced degrees, and more likely to work blue-collar jobs. Even if the insurance companies didn't intend to discriminate based on race or income, this policy may well do so.

In the long run, state leaders should see good public policy isn't behind a move to make insurance less affordable for the people who can least afford it already. McCarty is right to be looking into this -- and lawmakers should take heed, making these illogical rate structures off-limits -- a prohibition that should include credit scores as well as occupation and educational level.