GEICO, America’s fourth largest car insurer, promises big savings if you switch your auto policy, but the lowest rates aren’t reserved for the unemployed.
The insurer uses a controversial practice to help determine auto insurance premiums by taking into account a customer’s job and education level in addition to more traditional factors such as driving record, miles traveled and the vehicle’s make and model.
While GEICO (Stock Quote: BRK.A) officials have told state insurance regulators that education and occupation are just two of the 20 factors they consider in setting rates, its own web site shows they play a major role.
- Homeowner's Insurance Costs Nearly Twice as Much with Poor Credit
- Renters' Insurance: Over Half of Millennials Don't Realize They Need It
- How Much Rental Car Insurance Do You Really Need?
- Top States to Save on Auto and Homeowner's Insurance
- When It Makes Sense to Borrow From Your Life Insurance Policy
2 Good Drivers, 2 Different Rates
The GEICO website calculates a 25 year old, unemployed woman with a high school education living in Staten Island, New York would pay $1,173.70 to insure her 2004 Jeep Cherokee for a six month policy with GEICO. That’s more than 2.5 times the $438.50 premium a 25 year old female psychologist with an advanced degree would be charged for insuring the same vehicle.
In both cases, the unemployed woman and the psychologist had long-standing perfect driving records and were purchasing full coverage, including liability protection from lawsuits of up to $300,000.
In Fort Lauderdale, Florida an unemployed 49 year old high school graduate would pay $677.10 for six months to insure a 2007 Ford Taurus (Stock Quote: F). That compared to $497.64 for a bank manager with a bachelor’s degree.
GEICO underwriting documents filed with Florida insurance officials show nationally GEICO charges the highest rates to motorists with a high school diploma or less or to those who have jobs the insurer considers less desirable including postal clerks, stock clerks and unskilled workers.
“Motorists who are least able to afford the cost of auto insurance end up paying the most under GEICO’s pricing plan,” says Eric Poe, Vice President of Operations at NJ Cure, a New Jersey-based auto insurer.
GEICO officials directed a reporter to a trade group, the Property Casualty Insurers Association of America. Alex Hageli, the association’s personal lines manager, says GEICO has data showing a statistical link between education/ occupation and a customer’s likelihood of filing an insurance claim. He said fine tuning the rate process is actually an advantage to motorists. “It gives drivers a customized premium.”