Financial Services Superintendent Maria T. Vullo announced today that the Department of Financial Services (DFS) has finalized a regulation that protects New York drivers from unfairly discriminatory auto insurance rates and that Liberty Mutual and Allstate have already reached agreements with DFS in compliance with the regulation and have taken steps to eliminate any continuing impact of their prior use of education level attained and/or occupational status in initial tier placement. The new regulation prohibits insurers from using an individual’s occupational status or educational level as factors in setting rates, unless the insurer demonstrates to the satisfaction of the Superintendent of Financial Services that the use of these factors does not result in rates that are unfairly discriminatory.

“New York drivers who do not have a college degree or a high-paying job should not be penalized in the form of higher auto insurance rates,” said Superintendent Vullo.  “This regulation requires insurers to openly justify the use of education and occupation data in setting rates, ensuring that New Yorkers are not unfairly discriminated against and being charged higher rates due to factors outside their control or unrelated to driving ability.  DFS applauds Liberty Mutual and Allstate for proactively agreeing to be the first insurers that have previously used occupational status or educational level rate-setting to comply with this regulation.”

The use of education and occupation in determining insurance rates can penalize drivers without college degrees or who work in low-wage jobs or industries.  The result is that drivers with higher education and income pay less for auto insurance with no evidence that they are better drivers.

DFS conducted a multi-year investigation, which revealed that some, but not all, insurers in New York use an individual’s education level and/or educational status in establishing initial tier placement without a clear demonstration of the required relationship between these factors and driving ability.  As a result, classes of insureds have been placed in less favorably rated tiers, which may lead to higher premiums, without sufficient actuarial support that an individual’s education level and/or occupational status related to his or her driving ability or habits in such a way that the insurer would have a different risk of loss.

Under the final regulation, auto insurers are now prohibited from using drivers’ occupational status or education level as a factor in initial tier placement, unless the insurer demonstrates, to the satisfaction of the Superintendent of Financial Services, that its use of occupational status or educational level attained in initial tier placement or tier movement does not result in a rate that violates Insurance Law provisions ensuring the public welfare by regulating insurance rates so they are not excessive, inadequate, or unfairly discriminatory.

The final regulation provides 180 days for insurers that had been using education level and occupational status in initial tier placement and tier movement and have not already reached agreements with DFS in compliance with the regulation to amend their multi-tier rating programs and tier movement.

A copy of the final regulation can be found here.