How Your Job Affects Your Auto Insurance Rate

Occupations and claims rates

In December of 2012, Ray Banister got a form letter from GEICO. Bannister insured his truck through the auto insurance company, and the form letter made it clear their relationship would soon be ending:

“We are canceling this policy … the reason for cancellation is that your vehicle does not meet our underwriting guidelines because it is used in conjunction with a company that deals in the weapons industry,” the letter read.

So what was the weapons industry that GEICO referred to in the letter? Nuclear developers? Chemical bomb makers? Anti-aircraft missile designers?

It turns out that Banister makes shotgun adapters and shotgun accessories that allow different sized bullets and gunpowder to be used in common types of shotguns. He described his own business as a “sporting goods” company.

For gun enthusiasts and sportsmen, the cancellation of Banister’s policy in Montana was an ominous sign that GEICO was anti-gun. Banister put the letter online, and it became a popular discussion point in many forums supporting firearms. Conspiracy theories abounded, and soon GEICO had to respond to claims the company was punishing a pro-gun advocate for political reasons.

In a statement to the media, GEICO explained the cancellation wasn’t a pot-shot against the 2nd Amendment.  “We spoke with the policyholder … and there was some misunderstanding/confusion on our part on how he used the vehicle.”

“The premium has to reflect the risk that is presented by the individual,” said Insurance Information Institute president Bob Hartwig. “I can’t speculate the circumstances of this claim, but generically someone who has a private passenger vehicle, but is using it for work, it makes it more of a commercial use.”

And that confusion could be expensive: If Banister was using the truck to transport firearms as part of his job, GEICO could be exposed to “significant risk,” according to an independent agent based in Louisiana.

“Just like we know that teenage males are going to expose us to more liability, we know that some people in some professions also have a higher liability,” the agent said. “And if they’re using their cars or trucks for their jobs, that creates a lot more risk.”

“Especially if that work involves gun-powder,” she added.

OAI asked the agent if we could quote her by name about why different professions are charged different rates.

“I’m not comfortable with that,” this professional said. “Occupation and jobs is one of the most unpopular criteria we use to rate, and I don’t want people thinking I support it … It can be really unpopular”

So unpopular, that several major insurance companies and organizations representing the insurance industry declined to comment for this story.

“Insurance industry representatives all claim ignorance of the relationship between occupation, education and income level,” wrote the Florida Insurance Commissioner in 2007.

Yet, occupation is often an important factor for determining auto insurance premiums. And insurance companies know it.

How Insurers View a Driver’s Occupation

In that 2007 report, Florida Insurance Commissioner Kevin McCarthy looked at why occupation is used by insurance companies to rate risk, and what he found was both insightful and shocking.

In some cases, a person’s job offers a broad window into the finances, social life, and likelihood of whether the driver will file a claim, according to the Florida Office of Insurance Regulation.

For instance, a separate study referenced in the report showed that doctors, attorneys, and architects tend to have some of the highest accident rates of any profession. But their income levels mean insurers might not end up having to actually pay for those accidents.

“It appears that wealthier individuals are more likely to pay small claims out-of-pocket, and avoid making insurance claims, giving some occupations better loss ratios despite higher accident rates,” the report stated.

Occupations in themselves can also pose risks to insurers, as in the case of Banister and his shotgun business. Other jobs that make insurance companies wary are delivery drivers, professional athletes, and even new car salesmen in the UK.

Those jobs indicate to insurers that there is a greater degree of risk involved in insuring these drivers, either because of the frequent use of their personal car (food-delivery driver) or because others in a similar profession have shown to be higher risks to file claims due to reckless driving (professional athletes, car salesmen).

Meanwhile, occupation also gives insurers an idea of which policyholders are more likely to buy other insurance products. For example, if a company sells both auto and homeowners insurance, occupation is a good indicator of whether a customer would be more likely to purchase an additional insurance line, according to the Florida report.

That same report notes that some insurers began using occupation instead of ethnicity or race in the 1960s. For example, busboys, bootblacks, carwash workers, and maids were charged significantly higher rates compared to other more skilled workers. During that time, those occupations were predominately staffed by African-Americans.

That legacy is part of the reason that occupation is such an unpopular rating tool. Yet supporters of the rating tool say that a broad swath of consumers benefit from being able to evaluate the risk.

In testimony given to the New Jersey Banking and Insurance Commission, supporters of using occupation as a rating criteria noted that rates had, on average, gone down by as much as 20 percent after insurers began asking customers about their jobs. In densely populated urban areas, where minorities make up a large percentage of the population, rates actually declined after occupational rating was introduced to the state.

“We see a very positive effect on the market,” testified former Insurance Commissioner Steven Goldman, “including in urban areas.”

Meanwhile, many auto insurance companies began as targeting people working in certain sectors. For example, GEICO stands for Government Employees Insurance Company. The founder of GEICO believed federal employees would be lower risk customers because they were middle class, had steady employment, and most likely had families.

“You have to understand the history of insurance,” said Bob Hartwig. “‘Government employees’ is not an occupation.”

Hartwig said unlike early attempts at targeting various markets, modern occupational data is driven by insurers’ need to properly assess risk.

He added, “many insurers formed around a particular group,” such as Farmers or Geico. “But current insurance companies would not bother analyzing data if it did not serve the purpose to evaluate risk.”

The New Jersey report illustrated how job type can correlate with risk. GEICO’s rating structure was used as an example, showing five occupation “groups” that were lumped together because of similar claims data. The best group filed claims 15 percent less frequently than the average driver. The worst group, on the other hand, filed claims at a rate that was 25 percent higher than the average driver.

Know Your Consumer Rights

While insurance companies do not release which occupations they consider to-be the most at-risk, it is widely believed that workers in white collar jobs are often quoted lower rates compared with blue collar and manual laborers.

Still, if consumers feel they are being unfairly discriminated against because of their occupation, or if they believe their occupation is being used to determine their race or social class, they can contact their state insurance commissioner and file a complaint.

Or consumers can follow Ray Banister’s approach. After the gun enthusiast received his cancellation letter from GEICO, he posted it on his company’s Facebook page and protested. Soon, other like-minded sportsmen got involved, and GEICO issued a statement explaining what happened.

“We hope that we can … continue his policy,” the statement read.

It’s unclear what happened after that. Banister doesn’t want to talk anymore about the cancellation, and GEICO didn’t return repeated requests for comment. But that anonymous insurance agent from Louisiana said going public is the quickest way to get noticed.

Auto insurance, she said, “is so competitive, and there is so much scrutiny of rates, that no underwriter is going to want to risk bad publicity, an investigation, a lawsuit, or all three of those coming down on their head over one rating,” she said.

“If you got a complaint, let everybody know,” she added. “And if it’s really unfair, you won’t have a complaint for long.”

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