Your Job, Credit Or Phone Calls Can Affect Rate

By KEVIN BEGOS The Tampa Tribune

Published: Jan 17, 2007

And you thought hurricanes were the only reason to worry about insurance rates.

Turns out you can be denied or required to pay more for property, auto and other insurance because of your credit history, your education and even whether you're a blue-collar or white-collar worker.

Just as the industry uses supercomputers to model hurricanes, similar technology is being used to model people, assigning them a score for insurability.

This week, legislators are debating emergency fixes to the hurricane insurance market, but in the background, state officials are working on other problems, too.

In early January, an administrative law judge rejected Florida's attempt to limit how insurance companies use credit scores to write and price policies. The Office of Insurance Regulation is considering its options in that case, spokesman Bob Lotane said.

In early February, the state will hold a hearing to examine how insurers use education and job status to set rates on auto insurance. That's been a concern of Insurance Commissioner Kevin McCarty for some time, Lotane said.

Geico Documents Show Disparity

Skeptics should consider the "Geico Automobile Group Guide to Company Placement," a copy of which was obtained by the Consumer Federation of America. It has a page titled "Comparison of Geico Rates White Collar vs. Blue Collar."

In Miami, the white-collar driver rate was $729.50 for a policy; the blue-collar rate was $841.50 for the same coverage. In Louisiana, the two prices were $1,079.70 and $2,426.30.

Insurance industry experts defend such rates, saying they represent real differences in risk, not discrimination.

On Tuesday, the U.S. Supreme Court heard arguments in a related case. A federal appeals court had ruled that Geico Corp. and Safeco Insurance Co. would have to notify nearly all their customers that they aren't getting the best rates because their credit scores aren't the highest.

The major issue is whether the insurance companies willfully violated the Fair Credit Reporting Act of 1970. The companies say they didn't.

Private Companies Collect Data

A factor in who pays what: billions of records kept by private data firms and how those records are used to help write, price and refuse policies.

Consider industry leader ChoicePoint of Atlanta, which also has a large office in Boca Raton. According to a Federal Trade Commission complaint, "ChoicePoint's products and services draw upon billions of records … that contain the personal information of consumers, including names, Social Security numbers, dates of birth, bank and credit card account numbers, and credit histories, much of which is sensitive and not publicly available."

The FTC notes that ChoicePoint collects the information without making any contact with the consumers whose information it sells, and consumers cannot remove their information from ChoicePoint's databases.

Consumer advocates say that kind of power is dangerous, but the insurance industry points to a good side, too.

According to a 2004 report from the Florida Insurance Council, "the vast majority of Florida consumers pay less for insurance because the use of credit information allows insurance companies to charge good risks a more accurate, lower rate."

The report suggested that if credit scoring were banned, the average Florida family would pay $218 more a year for auto and home insurance.

ChoicePoint spokesman Chuck Jones said the company database now includes more than 98 percent of all insurance loss claims filed in the United States and that its CLUE software is used on several million property insurance applications each year.

"Through the use of the CLUE database, somewhere in the neighborhood of 70 percent of consumers actually get discounts on their premiums," he said. "Insurance premiums can be tailored to a specific individual or property."

But Florida officials warned of a downside in a report last year, citing the potential for "decreasing the availability of coverage for many insureds."

Bad Data Are Used To Deny Policy

Bob Hunter, a former Texas insurance commissioner who's now with the Consumer Federation of America, thinks that in some cases such information ends up hurting people it shouldn't.

"I'm thinking it's more giving discounts to rich people and charging more to poor people," he said.

ChoicePoint doesn't write insurance policies, Jones noted; its customers do.

In California, regulators pushed for legislation governing CLUE based on reports like this one:

"A homeowner in San Francisco was denied coverage from Nationwide Insurance due to CLUE data that reported a 'water claim' she filed while insured by State Farm," state officials reported.

"The consumer NEVER filed a water claim, but rather called her agent to see if a clogged pipe would be covered by her policy. The information was entered by State Farm into the CLUE database as a claim. There was no claim and no loss in this case. The consumer was unaware that this information existed. It was not until [state officials] intervened on her behalf that State Farm corrected the record."

According to the Insurance Information Institute, the industry source for information, each insurer decides how to use CLUE reports. In some companies, a home with two water damage claims in the past five years or several thefts will qualify for a standard policy, while others switch it to a high risk pricing tier. Some insurers will refuse to insure that home, the institute said.

Jones said that homeowners can get a copy of their CLUE reports free on the ChoicePoint Web site. There's also a process to correct errors.

Boundaries Of Law Are Unclear

The complexity of deciding whether data mining is discriminatory becomes clear in the Florida dispute over credit scoring and insurance.

Four years ago, the insurance industry worked with the Legislature to pass bills on accepted uses of credit data. But the industry said the state put the law into practice in a way that the data couldn't be used at all, and filed suit.

"The court basically ruled that we were correct that they'd gone too far," said Gary Landry, a Florida Insurance Council vice president.

Lotane, of the Office of Insurance Regulation, said the state could decide to appeal the decision or perhaps make a technical change to just the part of the legislation the judge objected to.

Hunter suggested it may be an issue worth fighting for.

"I think it's dangerous. It changes the way we've done rate-making," he said of credit scoring, adding that it can have a "huge impact" on auto rates.

Geico spokeswoman Chris Tasher said the company read with interest the notice of February's hearing and was "looking forward to discussing this with the Office of Insurance Regulation."

Hunter said that whatever happens on that issue and others related to data and consumers, the trend is clear.

"The technology allows it to happen," he said. "The insurance companies just have a tool. They're going to use it."

Information from The Associated Press was used in this report. Reporter Kevin Begos can be reached at (850) 222-8382 or kbegos@tampatrib.com.