Dollars and Jens
Wednesday, March 22, 2006
Discrimination in Insurance
NEW YORK, March 20 (Reuters) - A leading U.S. consumer group on Monday accused Geico Corp. of using consumers' education backgrounds and occupations as criteria in setting auto insurance rates, resulting in discrimination against minorities and lower-income people...I can understand people feeling squeamish about an insurance company charging different rates to different people based on demographic traits not directly connected with risk (especially if the rates are based on traits over which the customer lacks control, such as sex or age). On the other hand, the discrimination in question isn't being done irrationally or maliciously. And I believe level of education is often assumed by employers to be an indicator of level of maturity — Geico hardly invented the idea. From a Wall Street Journal version of the story:
Geico, a unit of Berkshire Hathaway... rejected the charges. It called them "an offensive attempt to link fundamentally fair and actuarially sound industry practices with invidious discrimination."
In an emailed statement yesterday, Geico defended what it called a "longstanding industry practice," saying the factors are just two of many used to price an insurance policy. "Every criterion, including occupation and education, used by Geico reflects its actual loss experience nationwide over many decades," the company wrote.For the record, I own shares of Berkshire Hathaway.
Representatives of State Farm Mutual Automobile Insurance Co. and Progressive Corp., the largest and third-largest auto insurers, respectively, said their companies don't use education or profession as a pricing factor.