Regulators and so-called consumer advocates have recently discovered, to their apparent horror, that the process of underwriting automobile insurance involves discrimination. Even more shocking, based on that discrimination, certain categories of insureds are actually being charged more for car insurance than others.

“How can this be happening in America? Why it’s against public policy! “

And “public policy” is often the catch phrase that is being used to justify the attempts at banning good rate making when the results don’t fit someone’s social agenda. Last year it was credit scoring in Florida. No matter how many charts and graphs could be produced by industry actuaries showing direct correlation between credit scores and loss ratios (99%!) — it wasn’t good enough. Florida Insurance Commissioner Kevin McCarty actually uttered these words:

“Many ...ethnic minorities often have limited or no credit history by choice (by choice?) or because they are beginning to climb the economic ladder. This should bear no relationship to what they pay for insurance...”

In other words, “We don’t care what the data shows because ethnic minorities are going to be paying more and that’s bad politics. Ah, we mean public policy.”

It may be bad politics but it’s great underwriting. Insurance companies have a responsibility to their policyholders and stockholders to set accurate rates, not effect social engineering.

Fortunately, a Florida administrative judge struck down McCarty’s credit scoring rule. According to the AIA, the judge called the proposed rule “arbitrary and capricious,” and found that it is “vague, fails to establish adequate standards for agency decisions, and vests unbridled discretion” to the regulating agency. The judge also found the proposed rule would “enlarge, modify, or contravene the specific provisions of law,” while also having a “definitional failure.”

Yet Kevin McCarty remains undaunted.

Now GEICO finds itself the target of this same silliness as Florida presses on, expressing public outrage on discovering that the company is basing auto  rates on education and occupation as well as driving record.

GEICO claims to have solid actuarial data to support its rate making structure. The state doesn’t really care about any of that.  McCarty and company are considering barring insurers from using education and occupation unless they can show they do not discriminate against minorities or the poor.

Underwriting is all about discrimination. Ideally, it discriminates between those likely to generate an adverse loss ratio and those less likely. Insurance 101, right? This shouldn’t be news to professional insurance regulators.

And it really isn’t. Actually, the State of Florida through its appointed insurance commissioner Kevin McCarty has decided that it would be nice if one group of auto insurance buyers subsidized another. Perhaps optometrists should pay some of the insurance costs of fast food employees.

Not because Mr.. McCarty has any great love for fast food but rather because ethnic minorities are heavily weighted within fast food workers and he doesn’t feel they should have to pay for their own loss ratios — data be damned.

Hold insurance companies to hard actuarial data. But when adverse loss ratios are owned disproportionately by the poor or by ethnic minorities — that’s where the cookie crumbles. If the state wants to do something about those results they should consider funding safe driving courses or personal responsibility classes in an attempt to alter the behavior of those having disproportionate losses — not pervert legitimate underwriting processes.

Anything else is political pandering, wealth redistribution and social engineering — none of which the good citizens of Florida are paying Mr. McCarty to either monitor or effect.

— Editor