Consumer Watchdog has petitioned the California Department of Insurance to reject GEICO’s and Progressive’s use of occupation in raising auto insurance rates. The challenges seek to stop the insurance companies from giving discounts to drivers who are employed in allegedly “elite professions” such as lobbyists, lawyers, and bankers while surcharging drivers who do not meet the companies’ selective criteria, including those in less-skilled or non-professional occupations. Such discriminatory pricing results in lower-income drivers paying more and is unlawful under California’s insurance reform law, Proposition 103.
This appears to be a growing trend. In December, New York state insurance regulators called on four insurers including GEICO and Progressive to explain why rating a person based on their occupation should not be prohibited.
GEICO’s proposed California rate increase it’s claimed – would overcharge people because they are in less elite professions, those who have lost jobs or are otherwise unemployed, students and retired people, by $10 million. Progressive overcharges those in non-professional occupations by $8 million.
“Progressive and GEICO want to attract customers who they deem desirable by adding a person’s occupation into the equation, giving breaks to the wealthy while squeezing out those less economically advantaged by charging them more. They are trying to get around the reforms of insurance reform Proposition 103 that require that auto insurance premiums be based primarily on a driver’s safety record, the number of miles they drive annually and the number of years they’ve been driving,” said Consumer Watchdog staff attorney Jonathan Phenix.
A recent Consumer Federation of America report reviewed premiums in 15 cities nationwide and claimed that GEICO and Progressive overcharge drivers of lower economic status by 92% and 80%, respectively, the worst record of the companies reviewed.
California Proposition 103 also requires insurance companies to set premiums based primarily on a driver’s safety record, annual mileage driven, and years of driving experience. Any additional factor must be adopted by the Commissioner by regulation after a public hearing and then only if it can be proven that it is “substantially related” to a driver’s risk of getting into an accident. Occupation has never been adopted by regulation as a rating factor and has never been shown to be related to risk.
Public Hearings on GEICO and Progressive?
Under the voter-approved Proposition 103, insurance companies like GEICO and Progressive must justify their auto, home and business insurance rates and practices. Consumers have the right to request a public hearing before the Department of Insurance to challenge illegal practices or excessive rates.
In the petition filed against GEICO, Consumer Watchdog challenged the company’s application for an overall rate hike of 4.9%, or $11 million. Consumer Watchdog’s analysis found that GEICO is proposing a rate decrease or modest overall rate increases of between -0.4% and 2.2% for the “elite occupations” that the company prefers, including: dentists, “white collar” contractors, scientists with master’s degrees and members of university alumni associations. However, GEICO wants to raise rates for drivers not employed in one of those occupations by 11.5%.
In addition to challenging GEICO’s occupation-based discrimination as unlawful, Consumer Watchdog’s analysis concludes that GEICO has failed to support its proposed rates and that all the company’s 150,000 policyholders are due for an overall rate decrease.
In a petition filed against Progressive in July 2016, Consumer Watchdog criticized the insurer for overcharging people who aren’t in preferred professions, including bankers, doctors, engineers and lawyers. Consumer Watchdog also challenged several procedures the company is using to deny some good drivers a 20% discount that they are entitled to receive under law. Progressive has made early moves “to fix some of its good driver discount procedures, but not on its use of occupation in insurance ratemaking.”
Proposition 103 Ban on Illegal Rating Factors
In 2014, Consumer Watchdog asked the Insurance Commissioner to investigate occupation and education-based surcharges and to issue a regulation that would explicitly “prohibit auto insurance companies from surcharging motorists based on their occupation, education level, membership in elite organizations and other unauthorized rating factors, many of which are thinly veiled surrogates for wealth, ethnicity and race.”
New rules would ensure other auto insurers don’t use the same tactics as GEICO and Progressive to overcharge drivers based on their occupation in the future. The Commissioner convened an informal “workshop” on the matter but has taken no further action. Read Consumer Watchdog’s petition here:
Consumer Watchdog is a non-profit non-partisan organization. It claims to have used the public participation process under Proposition 103 to save auto, home, business and medical malpractice insurance policyholders over $3 billion since 2003. Proposition 103 has saved motorists alone over $100 billion since its passage in 1988, per a 2013 report by the Consumer Federation of America.