Insurance Companies Using Education, Income to Determine Rates

The fix is pretty simple. All you have to do is go back to school, earn a PhD, and quadruple your current salary.

An article by Beatrice Garcia in the Miami Herald recently shed light on an unsettling insurance company practice of looking at education and employment levels of policyholders, and offering lower rates to those with higher paying jobs and more education.

According to the article, insurance companies like GEICO and State Farm have been charging thousands of dollars more per year to policyholders that don’t have college degrees, regardless of whether or not they have a clean driving record. For instance, two hypothetical drivers with identical driving records that live in the same neighborhood are paying completely different amounts. One is paying over $4000 per year, while the other is paying only $1400. In this hypothetical scenario, the first driver is a mechanic with a GED, while the second driver is an engineer with a PhD.

This is a practice that has been put into place by insurers in over 44 states. Insurers cite their own statistics as justification, saying that those with less education are more likely to have an accident. But they aren’t allowing anyone to see the data, which they described as a “trade secret” in a February 10th hearing in Florida, where state regulators had some perfectly valid questions for these insurers. Considering that African-Americans and Latino Americans have a lower percentage of college graduates than whites, aren’t insurers not only engaging in class bias (which is bad enough,) but racial bias as well?

When the insurers were asked if they had examined the readily available data from the US Census regarding educational attainment among Americans, all of them said that they had not seen it.

"I have not, and I am not aware of anyone in the company who has," said Chris Cunniff, a vice president for Liberty Mutual. This seems to be unlikely, as insurers of every type spend thousands of hours a year putting every bit of data through every possible type of statistical variation. This is how they determine risk for everything from crop insurance to fire insurance to health insurance. With that in mind, surely it must have crossed the mind of someone at GEICO or State Farm that they were not only soaking poor people, but also our nation’s minorities.

Other reasons cited for higher rates for the poor or less educated were equally unsettling. Insurance companies claim that those with more education and better jobs are more likely to purchase more insurance, which would lead to a discount. That’s all well and good, but that doesn’t explain how a PhD who buys more insurance is still paying thousands of dollars less than a mechanic who purchases the minimum, as our hypothetical situation shows.

Another justification is that poor and undereducated people would actually use the insurance if they got into an accident. People with more education (which apparently means a better job and more money) sometimes bypass the insurance process altogether in the event of a fender bender and simply have the damage repaired themselves. People with less education (which apparently means a bad job and less money) couldn’t afford the repair bill, so they would take the car in to get repaired and actually expect the insurance company to do what it promises to do, which is financially cover the damage.

In a nutshell; Insurance companies are charging higher rates to the people that can afford it the least. They are concerning themselves more with education and the color of the collar on the worker, which means that they are also paying attention to the color of the skin of the worker, whether they are admitting it or not.

So far, Florida is the only state to call this practice into question, but you should remember that insurers are using this method to determine rates in 44 states altogether. The Law Offices of Jeremy Flachs urge you to contact your insurer to see what methods they are using to determine you rates. And as always, if you have been injured in an accident, contact our offices for a free legal consultation today.