Md. Commissioner Orr Defends GEICO Against Unfair Underwriting Charges

March 29, 2006

In a letter to the Consumer Federation of America (CFA) and to the New Jersey Citizens United Reciprocal Exchange (CURE), Maryland Insurance Commissioner R. Steven Orr dismissed allegations by those organizations that GEICO Insurance has engaged in unfair rating practices.

Orr said GEICO uses multiple factors in setting rates for drivers and is not in violation of any rating laws.

CFA and CURE had criticized the insurer for allegedly basing auto insurance rates solely on applicants’ occupation and education levels.

“As GEICO’s domestic regulator, I begin my analysis based on the facts,” Orr maintained. “My review of the facts show that the allegations made by CFA and CURE are without foundation.
GEICO utilizes more than 20 rating factors in determining rates, not just education and occupation.”

Orr noted that, if all other rating factors were identical, it is possible that a difference in education or in occupation could result in a different rate.

“That, however,” he said, “is true of any rating factor that you isolate from a complex and comprehensive rating scheme. For example, all other factors being identical, a young adult who is in college may pay less than a young adult who is not in school.”

The Maryland Insurance Administration said that its last market conduct exam of GEICO was completed in April 2005 and that this exam revealed no evidence that GEICO had violated its rating plans by relying solely on education or occupation in setting premium.

Neither did the exam reveal any evidence that GEICO is engaged in unfair discriminatory pricing, according to MIA. The officials confirm that GEICO utilizes multiple factors in underwriting and rating an applicant/policyholder. While both education and occupation are among those factors considered by GEICO, they are by no means the only factors used to determine premium, they stated.

MIA said it views GEICO “favorably as a strong competitor” in the auto market.

“Competition drives down prices,” Orr added. “Competition is the best consumer protection possible.”

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