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Generic Confusion

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Tuesday, March 21, 2006

The gecko, in trouble?

Your garden-variety gecko might be afraid of snakes hunting it, but another gecko is being hunted by the Consumer Federation of America.

Wait. Not gecko, GEICO. It's so easy to get them confused. :)

It seems the CFA doesn't like the way GEICO uses the insured's profession and education to help judge risk and set rates. (Aside: one of GEICO and the CFA is owned by genius businessman Warren Buffett; can you guess which one?)

Let me point out that profession and education are not as important as age, sex, and marital status in judging risk for auto insurance. (All of which are horribly unfair to me, a single young man.) And rating based on education and profession isn't required; other companies are free to price without considering this factor. Blue-collar workers with good driving records can get their insurance cheaper through other companies.

Unfortunately, an actuary (a Fellow of the Casualty Actuarial Society), who should know better, is arguing in favor of his employer, and against this more refined GEICO model:

But these factors can also penalize otherwise good drivers who don't make the cut, said J. Robert Hunter, the Consumer Federation's director of insurance.

"To say blue collar is worse than white collar, I don't think that is right," said Hunter. Hunter is also a former Texas insurance commissioner, and served as a federal insurance administrator.

I hate to point out the obvious, but I will. And you don't need to be an actuary to know this.

ANY rating factor can penalize otherwise good drivers.

My driving record is pretty good, with one weather-related accident over twelve years of driving, and this is with driving around 16,000 miles a year. Yet I've had to endure paying insurance rates partially driven by stereotypical young male drivers who are reckless, who drink and drive, who are aggressive, and who are otherwise stupid. Where can I sign up for the class-action suit to give me some relief?

The funny thing is, every time I renew my car insurance, I say my rates should be lower because I'm an actuary, and thus understand risks better. Little did I know a company actually has this rating structure!


At 11:47 AM, Blogger honestpartisan said...

I have a question: I live in Brooklyn, where car insurance rates are sky-high. Why are they so much higher here then elsewhere? I don't see how a county of 2.5 million people can be classified in terms of likelihood of getting into an accident.

At 11:39 PM, Blogger Greg said...

Let me preface my response with the standard response that I don't work with auto insurance....

Short answer: Premiums are higher because claims are higher.

Longer answer: I'll suggest differences between Brooklyn and a suburb in Indiana. Do these sound like they would impact claims under a comprehensive auto insurance policy?

1. Higher rates of theft.
2. Most cars aren't stored in garages.
3. Narrower streets and alleys.
4. Higher traffic density.

My brother lives in Chicago, drives a lot less than I do, but his car is in worse shape. He has a lot of little dings and scratches that are the result of driving in congested traffic, and a broken mirror due to maneuvering through narrow alleys.

I've driven in Manhattan and Brooklyn, and never much liked it.


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