Discrimination in Insurance Underwriting

A report from the Florida Office Of Insurance Regulation (FLOIR) finds that minorities are facing an unintentional discrimination when insurers use education and occupation as part of their auto insurance underwriting criteria, says an article in the Tampa Bay Business Journal.

Auto insurance is a very competitive business.  As a result, underwriting practices used by one insurer tend to spread quickly, as competitors attempt to level the playing field. This was a primary concern for FLOIR when looking at the use of education and occupational information in car insurance underwriting.

The problem with the use of education level and occupation is similar to the problem with using a person's credit score as part of the underwriting process; these types of information will clearly impact those who are already under financial pressure.

FLOIR has been following the practice prior of using education and occupation since 2004, when FLOIR informed the insurance industry that use of these factors was at best questionable. At that time, the industry was warned to stop using these criteria within a year. Since then, FLOIR has held hearings on the practice and their report reflects the outcome of those hearings, held on February 9th in Tallahassee.

A number of insurers were called to testify, including big players in the Florida insurance market such as AIG, Liberty Mutual and GEICO. All insurers claimed they were using education and occupation in a "color-blind" way because they don't collect either race or income information. However, the companies did admit that they haven't researched whether there is any impact on minorities or disadvantaged groups by using these factors.

Monique L. Attinger

Posted by editor@insuranceguide101.com on June 1,2007 at 4:59 AM

If the issue is the ability to pay the premiums, and that is the reason to use credit scoring, it does seem a double whammy on the low income person. While every insurer wants a good client, I'm not sure that I see the reason to charge a higher premium in case a person doesn't pay. After all, if the person doesn't pay the insurance premium, the insurer doesn't have to pay the claim. Seems pretty straightforward, and avoids the issue of penalizing the poor.

Posted by Gary Brown on May 31,2007 at 9:17 PM

Lower income consumers and insurance credit scoring. Wow, that is a touchy subject. I certainly understand both sides of that argument and will watch carefully to see how it plays out. Insurance is all about discrimination so this really should not surprise anyone. But it also helps lower premiums for people who make the effort, just like having good credit gives you a lower home or auto payment.

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