Insurance giant GEICO
agreed Monday to pay $6 million to settle charges that it unlawfully discriminated based on gender, educational attainment and occupation when quoting auto insurance rates online.
The Department of Insurance in California, where it is illegal for carriers to use such underwriting factors, announced the three-year settlement as the end of claims first raised by the state’s Consumer Federation.
Under the settlement, GEICO agreed to no longer consider education and occupation when determining coverage limits for people who otherwise qualify as “good drivers.” Additionally, the carrier will offer coverage of $15,000 per person and $30,000 per accident to certain drivers as well as submit to bi-annual audits of its website.
If GEICO does not comply with terms of the settlement, the payout will double to $12 million.
“Consumers are entitled to a fair estimate that does not misrepresent material information and discloses fully what they are getting for their money,” said California Insurance Commissioner Dave Jones.
GEICO did not admit to wrongdoing in agreeing to the settlement, but it was charged with targeting women, low-income people, and those not working in professional or executive jobs. GEICO allegedly used deceptive tactics to inflate quotations for those individuals, while offering better terms to drivers considered “more desirable.”
The use of underwriting factors like gender, marital status, occupation and credit score has been under fire in the wake of a report released by the Consumer Federation of America. The report detailed the proliferation of the use of non-driving rating factors by insurers, including rate increases as much as 115% for those with poor credit scores.
Among carriers, GEICO relied on credit data the least, with a 32% premium fluctuation, while Farmers
relied on it the most (a 62% fluctuation). Progressive (60%), State Farm
(54%) and Allstate
Other work by the CFA revealed that GEICO would charge 19% more for a bank teller with a high school degree than for a bank executive with a college degree, and 41% more for a high school graduate in retail than the same bank executive.
"I am convinced that the use of non-driving-related factors to raise rates for people with low-paying jobs and less education is unfair and should be tightly regulated, if used at all," said J. Robert Hunter, Director of Insurance for the Consumer Federation of American and former Texas Insurance Commissioner. "Auto insurance, which is required to be purchased by the state, should be rated on driving record, miles driven and other factors clearly related to the risk of driving."
Other CFA staffers stressed that the use of these factors should persuade consumers to shop around with the use of an agent.
“You may find some companies hold it against [a client] if they have a blue-collar job, and you may find a better rate by focusing in on these factors,” NYPIRG Campaigns Director Andy Morrison explained to Insurance Business
in a previous interview.