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Thursday, March 09, 2006

Premium unfairness

So Geico uses education and income among its criteria for setting auto insurance premiums in New Jersey. The company shouldn't be surprised that state legislators think that's unfair and are proposing laws to strike those factors from insurers' rate-setting business.

How does how smart you are or how far you've progressed in school correlate to making you a safe driver? There are many rich folk driving their new big vehicles much too fast. And many low-income people who have to drive their older economy cars safely because they have mouths to feed at home.

These criteria were approved by the New Jersey Department of Banking and Insurance, so the legisators can point at state officials, too. They undoubtedly didn't want to do anything to discourage Geico from re-entering the state's insurance market two years ago. But when a company injects factors that are irrelevant as well as unfair, somebody has to say, "Not here.''


Anonymous Nick said...

If those factors (education and income) are irrelevant, as you suggest, then surely insurance companies would not be interested in using them to develop rating criteria. They are interested in controlling losses; hence they are only interested in factors that have predictive value for losses. If people with moustaches are found to have favorable loss experience, then you can bet insurance companies will do everything they can to sign up moustachioed people. It's as simple as that.

11:06 AM, March 09, 2006  
Anonymous Anonymous said...

Clearly the author of the previous post understands how insurance works. We can not have our government messing with the insurance companies based on the myth of discrimination or emotion. The companies base premiums on what their statistics tell them. If they did not, they would not be in buisiness.

8:43 AM, March 14, 2006  

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