The Checkout

Geico's Risk Criteria Challenged

Auto insurer Geico uses drivers' levels of education and occupations in setting insurance rates, according to an internal company memo cited by both the Consumer Federation of America and a competitor. As a result, CFA argued, blue-collar workers with relatively low levels of education sometimes are charged almost twice as much as better-educated professionals, based on those criteria.

"No single criterion is ever used to determine a customer's rate," Geico said in a statement late yesterday. "Persons of all educational levels and occupations are offered insurance at our best rate based on a variety of criteria. Income or race based criteria never has a role in underwriting or pricing. These allegations are patently false and intentionally divisive."

Read more about this story in today's Post and tell me your experiences pricing insurance at different companies, including Geico. You can post comments here or e-mail me at thecheckout@washpost.com.

By Stacey Garfinkle |  March 21, 2006; 8:56 AM ET Consumer News
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Comments

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How is this any different than the legal use of ones credit score to determine auto insurance rates. Just because someone had a spell of bad luck financially doesn't mean that they are high risk drivers. There is discrimination across the board in the auto insurance industry. I have never been given a straight answer when it comes to insurance!!!!

Posted by: Mad in Arkansas | March 21, 2006 10:03 AM

Well, I was told once that the reason they use credit scores is that they've found that people with spotty/shoddy credit often make more claims in order to defraud insurance companies.

Posted by: write4food | March 21, 2006 10:17 AM

I have not heard of Geico using education and employment for risk assessment although I am aware they do acquire your credit score for assessment. It really does not surprise me. Geico's website does explain that they do not review your credit report but that they just obtain your credit score as one of the factors in risk assessment. I have not seen anything about employement or level of education as a factor on their site or in any of my Geico documents.

From what I've heard from co-workers and friends who have other insurance carriers, credit information is used in a different manner (for instance the number of total credit accounts on your file). It helps to ask what an insurance carrier uses for risk assessment before you apply for coverage. Who knows what other information they gather and how they use it.

Posted by: Geico Customer | March 21, 2006 10:18 AM

My understanding is that insurance companies care about money, bottom line. They use all kinds of actuarial statistics to determine the probable risk of a potential customer based on past customers who fit the same demographic profiles. If their stats tell them that white-collar workers have fewer accidents than blue-collar workers, they're going to give better rates to white-collar workers. (If their stats told them that white collar workers were more likely to have accidents than blue-collar workers, you can be sure blue collar workers would be getting better rates.)

While it's certainly a disadvantage for the blue collar worker, it's questionable whether it's discrimination because Geico must have the stats to back up their claim that, IN GENERAL, a blue-collar worker is MORE LIKELY to be a riskier driver. I capitalized those words in the last sentence because of course there are some brain surgeons who repeatedly total their cars while there are lifelong factory workers who've never gotten so much as a parking ticket -- but the insurance companies care about what the stats tell them in general because that's the best way for them to assess risk and be profitable, which is why (at least in their viewpoint) they exist in the first place.

Unfortunately, while it may not be discrimination, it's another example of how the deck can be stacked against you if you are uneducated in this country. Not only are your job options more limited, which means you generally will earn less, but your bills are also higher relative to those with more education. There's a double whammy if ever there was one.

Posted by: Justin | March 21, 2006 10:42 AM

Last summer when I was applying for a new auto insurance policy, the representative of the company (not Geico) asked for my occupation.

Just yesterday, I recieved an offer in the mail from my college's alumni association for a group discount from an auto insurance company different from my own, and also not Geico. The form said I could get an additional discount if I have a Bachelor's degree.

Sounds like this practice is more widespread than just Geico.

Posted by: J. | March 21, 2006 11:45 AM

As a young man with a perfect driving record who pays a hiring premium than my sister, I'm not sympathetic. They use sex as a determinate for insurance rates, so they can certainly use Occupation and Credit Score.

Suck it up people.

Posted by: Justin | March 21, 2006 12:04 PM

I hope that Geico has good data to back up their use of the criteria reported today, for two reasons:

One, we know that racial and other biases in the past were supported by "statistics" that turned out to also be biased. Consider the fully-discredited book "The Bell Curve." It would be a shame if Geico was pricing insurance based on racist superstition.

But if there is good data, and no evidence that Geico is using education and profession as a proxy for race, why shouldn't Geico use that data?

Second, I am very happy that as a single 27-year old male graduate-degreed professional with a perfect driving record (knock on wood), I get full coverage from Geico on my old sports car for $225/6 mo. That's less than half of what my previous carrier attempted to raise my premium to, with no justification.

Posted by: asdf | March 21, 2006 12:16 PM

I had Progressive for many years until all of a sudden my insurance shot up about 20%. The excuse I was given was that it was normal percentage hike (the pay hike my parents received was about 2%). Well, about a year after I switched to Geico (who gave me a great rate and while I didn't finish college, I'm not a blue-collar worker) I got a letter stating that Progressive had indeed upped my insurance based on my credit report (not horrible, not great) and had done so to many others as well (there had a been a class action suit, I believe). I had been with Progressive for about 7 years before this came up and all payments had been on time and I had only one accident. I couldn't be happier with my switch to Geico after Progressive pulled that stunt. They are way cheaper and have great customer service.

Posted by: D. | March 21, 2006 12:47 PM

Insurance is a privilege. It is NOT a right. If you behave badly, you're out. On the other hand, you are rewarded for good behavior. In a free market society, if one doesn't like the rate, one goes to the next business. It's that simple.

Posted by: Vince | March 21, 2006 1:10 PM

In DC auto insurance is not a right or a privilege it's law. Try driving without proof of insurance and use that excuse...no more driving for you.

Posted by: DLS | March 21, 2006 1:25 PM

Problem is, of course, even where insurance is required, plenty of people make what is a rational decision to drive without insurance because they're financially judgment proof, and, are undeterred by the threat of a citation for driving w/o insurance when discounted by the (un)likelihood of getting caught.

In doing so, and then getting in accidents, they raise rates for the rest of us, who have to pay for coverage for our losses regardless of fault.

This phenomenon is by no means limited to DC.

Posted by: asdf | March 21, 2006 1:47 PM

Ok to set the record straight - no one over the age of 18 is judgement proof and especially not in DC they can and will garnish your wages up to 40% and take any equity you may have in your home.

Next - once again setting the record straight - no insurance company writing insurance in DC can even ask level of education or occupation.......

And as an insurance agent I will also include that there are facts that show for the "most part" lower level of education and low income jobs do equate to eratic/unreasonable bahavior. Now this is just another reason to preach to our children just how important it is to obtain an education!

Also these rating factors are used in everything - education determines your profession which also determines you interest rate on everything - why not also insurance. This by no means is anything like racial discrimination..

Posted by: Ins Agent | March 21, 2006 6:33 PM

It kinda makes sense; if I don't finish school then I get a bad paying job- work a lot of hours more than the guy with the good job, have a lot of stress, get less sleep, live in a louder part of town with more problems, have less opportunities for good health care, pay higher interest on everything, have more problems, drink more, smoke more, pregnate more hoes. I guess after all that I is more likely to have a reck!

Posted by: Crack Dude | March 22, 2006 5:57 AM

"If you can't beat 'em, join 'em." I've known about this for almost 15 years from a coworker who used to work for that insurance company. Since that time, I have embellished my job titles and level of education when asked by an auto insurance company, and I have been getting great rates.

Posted by: Jay | March 22, 2006 4:20 PM

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Posted by: Allison Trump | May 24, 2006 12:10 AM

At my age of 48 I've had a perfect driving record. Geico's rates were 30% higher than my current Insurance company. They claim it's my credit,..good I'm glad they were higher. I had to turn them down. I never have trusted anyone I couldn't look square in the eye. I guess my not so good crdit 'Just saved me not 15% but over 30% not bad for so called shoddy credit. Thanks Geico you made my day.

Posted by: Perfect Record | July 5, 2006 11:14 PM

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