GEICO ordered to stop surcharges for elderly State says practice is discriminatory

May 29, 1992|By Patricia Meisol | Patricia Meisol,Staff Writer

An article in yesterday's sun incorrectly stated that drivers over the age of 50 pay a surcharge on insurance rates charges by GEICO General Insurnace Co.

GEICO adjusts its rates using a range of factors including age and annual driving mileage. Although policyholders now face higher rates when they turn 65 and again at 75, typical policyholders receive rate reductions when they turn 50.

A table accompanying the story was also incorrect. The figures it presented should have been stated in hundreds of dollars rather than in dollars and represneted the total cost of a policy and not the amount of a surcharge.

FOR THE RECORD - CORRECTION

* The Sun regrets the error.

State regulators have ordered one of Maryland's largest private automobile insurers to stop slapping customers with a surcharge on their 65th birthday, calling the practice discriminatory to senior citizens.

In a decision that surprised the company, GEICO General Insurance Co., state Insurance Commissioner John A. Donaho ruled this week that the company may no longer automatically increase premiums for Marylanders just because they turn 65.

GEICO is the fourth-largest insurer in the state and assiduously courts older drivers, offering them discounts on their base rates as well as guaranteed renewals. But, according to the state's order, "it is evident that the premium increases as the driver ages regardless of other factors such as mileage or use of the vehicle for pleasure or commuting."

Two other insurance companies, including one that sells its policies to members of the American Association of Retired Persons, were found during the GEICO investigation to engage in similar practices. They voluntarily complied with requests by the Insurance Division to change their policies, state officials said.

More companies are under review in what is shaping up as a test of a 1972 state law that bars insurance companies from raising rates or canceling policies on the exclusive basis of age.

Many states, most recently Texas, have begun to enforce new or strengthened laws banning insurance discrimination based on age and ethnic background.

Since 1988, Chevy Chase-based GEICO has adjusted its rates upward for people between the ages of 50 and 75. The ruling, citing a law that protects people 65 and older, did not address the extra charge for people between 50 and 64.

A GEICO executive maintained yesterday -- and in hearings last month -- that the higher premiums are justified by the greater frequency of accidents involving older drivers and are not exclusively based on age.

"This has been a complete surprise to us," said David L. Schindler, regional vice president at GEICO. "I can't imagine why the department would make such a ruling considering the fact that they approved the rates." He said GEICO is considering a legal challenge.

The Insurance Division investigated GEICO's rates after receiving complaints from motorists who said their premiums increased even though they rarely took their cars out of the driveway.

Typically, companies set a base rate that takes into account the experience of drivers in the policyholders' neighborhood. They then add or subtract other charges based on age, gender, driving distances, driving record, type of car and other items, such as safety equipment.

Between its base rate and the other charges, GEICO tacks on a charge for what it calls the "mature driver."

These are people in three groups, ages 50 to 64, ages 65 to 74, and 75 and older. The additional cost of the policy ranges from 0.75 percent for a person between the age of 50 and 64 who drives less than 3,000 miles a year to an increase of 1.7 percent for a person over 75 who drives more than 12,000 miles a year.

Based on an $800-a-year rate, the extra charges would range from $6 for a 50-year-old who drives only a few thousand miles a year to $13.60 for a 75-year-old motorist who drives more than 12,000 miles a year.

The ruling refers only to discrimination against older residents and would not affect the common practice by companies of using age to set rates for drivers 16 to 64 years old.

Two other insurance companies, Maryland Casualty and Hartford Underwriters Insurers Co., which writes policies for the AARP, were asked by the state this year to change their policies. They complied, according to Robert D. Friedman, a rate analyst for the Insurance Division.

The division said GEICO must submit new rates by July 15 and stop using the current ones by Sept. 1. It has 30 days to appeal.

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