Pa. Eyes Bill To Ban Ed, Occupation Factors In Auto Rating

Industry officials cautioned against a Pennsylvania legislator’s plan to introduce a bill in January that would ban the use of education and occupation as auto insurance rating factors in the state.

A recent news report in the Pittsburgh Post-Gazette noted that State Rep. Anthony DeLuca, D-Penn Hills—who chairs the Pennsylvania House Insurance Committee—plans to introduce the bill because he believes using education and occupation as auto rating factors is discriminatory.

Loretta Worters, spokesperson for the Insurance Information Institute (I.I.I.), did not comment on the bill proposal specifically but said restrictions in actuarially valid underwriting criteria would lead to uncertainty, higher prices and less competition.

“Despite what Rep. DeLuca claims, all underwriting factors used by auto insurers, including occupation and education, have been actuarially demonstrated to enhance the insurer's ability to predict loss,” she said via e-mail.

She also pointed out that a June 2006 Maryland Insurance Administration study concluded that occupation and education, when used as rating factors for auto insurance, are actuarially predictive of loss and are not unfairly discriminatory.

Dave Snyder, vice president and assistant general counsel of the American Insurance Association (AIA), pointed to a formal administrative law proceeding that occurred in New Jersey, which also found that using education and occupation as rating factors is not discriminatory.

Mr. Snyder said AIA does not necessarily endorse using education, occupation, or any other specific rating factors, but he said banning a practice that is legal and effective is not good for consumers and could lead to better risks subsidizing bad risks.

He added that while AIA does not agree with the legislation itself, concerns raised by Rep. DeLuca deserve to be considered.

Mr. Snyder said that while some insurers are using education and occupation as rating factors, others are moving in the opposite direction, by basing rates more on vehicle usage and miles driven. The variation in rating factors, he added, is what is to be expected from a very competitive marketplace.

The proper approach, he stated, is to allow for innovation in the marketplace, as long as the new approaches comply with applicable laws—including anti-discrimination laws.

Ms. Worters noted that “most auto insurers base price on multiple factors, including the type of vehicle a policyholder owns, how many miles they drive, a person’s driving record and the community in which a policyholder resides.”

She added, however, that occupation and education are also important predictors of loss. “No single factor determines eligibility for coverage or the premium charged. In fact, insurers use 20 or more risk factors when making determinations about price,” she said.