In favor of An Act Banning the Use of Socio-Economic Factors For Insurance Underwriting and Rating of Motor Vehicle Liability Insurance S.461
To: Chairmen Petruccelli and Costello and members of the Committee on Financial Services

Good afternoon. My name is Deirdre Cummings and I am the Legislative Director for the Massachusetts Public Interest Research Group (MASSPIRG).  MASSPIRG is a member supported, statewide, non-partisan and non-profit public interest advocacy organization. I am here today to testify strongly in favor of S.461, An Act Banning the Use of Socio-Economic Factors For Insurance Underwriting and Rating of Motor Vehicle Liability Insurance.

A fair auto insurance system would require premiums to be based on “how you drive” not “who you are”. How much consumers have to pay for auto insurance (rating/underwriting/discounts) should be based primarily on your driving record, and NOT on socio-economic factors like what your credit score is, what level of education or type of job you have, OR “proxies” for socio-economic factors.

In fact the recently deregulated so called “managed competition” regulations list a number of socio-economic factors that insurers may not use in setting rates. Specifically, the regulations prohibit the use of: sex, race, marital status, creed, national origin, religion, age, occupation, income, education, home-ownership, and credit information.

We are concerned however, that these factors, or proxies for these factors, are being used despite current regulations and that this policy is so fundamental to the access and cost of an important financial protection tool, auto insurance, that the use in any way of socio-economic factors in setting premiums must be enforced and included in statue.

We know for example that many of the auto insurance discounts currently being offered today are in fact, proxies for prohibited rating factors. If the regulations prohibit them, then we ought not to allow them to be used through the back door called “discounts.”

In this case, if a consumer is not getting one of the discounts based on a socio-economic factor, then they are paying higher premiums for those who do.

Premiums (front door) or underwriting decisions or disounts (back door) based on whether or not you have a homeowners’ insurance policy is in fact a proxy for the use of the prohibited rating factor of home-ownership, and is also a proxy for income and for credit information. In addition, the good student discount, or discounts based on your membership in college alumni or professional associations are proxies for the prohibited rating factor of education and occupation. These are a few of the many such examples of back door ways insurers are using so called prohibited socio-economic factors in setting premiums.

Further, this morning I was looking for an insurance rate quote from and could not proceed with first answering the following questions: occupation (administrative clerical, dentist, lawyer, retail….), marital status, residential status (home owner/renter/dorm), credit rating, education (high school diploma, GED, Assoc. Degree, Bachelors Degree, Masters…). While I do not know how the answers were factored in to my premium, why would I need to provide that information if it is prohibited for rating and underwriting? If insurers are not using some of this information today, then you can see on the computer screen in the questions asked that unless stopped, this is where the industry wants to go.
While this bill prohibits the use of socio-economic factors and their proxies, we have recommended in the past that the most efficient way to ensure that happens is to turn this around by only “allowing” the rating and underwriting factors that can be used.

Since our current regulations specify only prohibited rating and underwriting factors, as opposed to a complete list of the allowed factors, creative companies are able to use an endless number of proxies for the prohibited factors.

Insurance companies are continuously looking for new rating and underwriting factors. They allege that these factors correlate with losses. Most of these factors correlate with race and income, and consequently, the use of these factors by insurers harm minority and low-income drivers.

Moreover, there is no showing by the industry as to why these factors might correlate with losses. Is it because these factors are proxies for race and income? Is it because a correlation exists for some subset of drivers, but not for all drivers?

Without a good understanding of why a rating factor produces a correlation, it is unfair from the consumer’s perspective to allow insurers to use such a factor to charge higher rates.

While in the past, under our fixed and established system, we have approved some of these types of discounts in the past, consumers were protected because the insurers generally were not allowed to pay for the discounts by charging higher rates to drivers not receiving the discounts. Under the new rating regulations, drivers not eligible for the discounts would pay more and would essentially be the funding source for the discounts.

The public believes auto insurance should be based on driving record. In a poll released by the Massachusetts Association of Insurance Agents this summer, by a margin of 68.3% to 31.6%, respondents across all demographic groups believed that auto insurance premiums should be based as much as possible on an individual’s driving record and years of driving experience. The poll also found that people’s concerns about their own job security and credit history played an important role in their thinking on this issue. 41.9% of respondents personally knew a family member who had lost a job because of the current economic problems. The poll also found that 63.5% of likely Massachusetts voters supported a law to prohibit insurance companies from considering these socio-economic factors, while only 29.1% favored their use.

Finally, I have submitted a copy of our report released in 2008 called, ‘How You Drive’ Takes a Back Seat to Who you Are: (Mis)Managed Competition in the New Massachusetts Automobile Insurance Market, which showed the impact of the use of socio-economic factors on premiums in the first year of the new deregulated insurance system. Since then the use of prohibited socio-economic factors have increased. The report is also available on our website,, under reports.

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