Consumer Federation of California

GEICO agreed to pay $6 million to settle a Consumer Federation of California (CFC) complaint alleging the insurance giant violated civil rights and insurance laws by targeting low- and moderate-income women and unmarried motorists with deceptive and inflated automobile insurance rate quotes. The settlement also requires GEICO to change its website to provide all good drivers an initial quote for identical coverage, without regard to marital status, gender, educational attainment, occupation or current insurance status.

“This is an important win for all California motorists,” said CFC Executive Director Richard Holober. “GEICO is paying a price for its unfair practices, and the settlement assures that all good drivers are treated equally, whether rich, poor, or in between. It sets a new industry standard for rate quotes that are accurate and transparent.” The settlement was announced August 25.

Victims of GEICO’s deceptive practices are good drivers with less than a four-year college degree and an executive or professional job who lack current insurance, the CFC alleged. California Insurance Commissioner Dave Jones approved the settlement after the Department of Insurance mediated talks between CFC and GEICO.

GEICO would face an additional $6 million dollar payment should the Department of Insurance find that it is not complying with the settlement terms during the next three years.

“All Californians, whether a well-heeled executive or low-wage worker, deserve equal access to the insurance marketplace, and this agreement ensures fair treatment for good drivers who go to GEICO’s website for a premium quote,” said Douglas Heller, a consumer advocate and independent consultant who managed CFC’s challenge of GEICO’s practices.

‘Lowest Limits’ As Much As 1000% Over Minimum Coverage

CFC filed an enforcement petition with the Department of Insurance in February following extensive testing of GEICO’s online rate quote system. CFC determined that when a good driver that GEICO deemed a less desirable customer filled out an online questionnaire, the company presented a quote under the banner “Lowest Limits” that the company stated was the lowest level of coverage it could offer, but which was in fact as much as 1000% higher than the minimum coverages it must offer to a good driver under state law.

Good drivers singled out for these inflated quotes are motorists that have all of these characteristics: less than a four-year college degree; not working in a professional or executive job; not currently insured; and unmarried, or a woman. During several months of testing, CFC noted that GEICO switched its rate quote formula, initially overcharging all women with all of these characteristics, later overcharging all unmarried persons with these characteristics. CFC found that the quoted “lowest limits” premium costs for targeted motorists were 40% to 54% higher than a minimum limits policy it quoted an otherwise identical driver who was married (or female, during the initial testing period); or a college graduate; or in a professional or executive occupation; or currently insured.

CFC’s petition cites this example of a discriminatory and misleading online GEICO rate quote: A single woman living in Fresno with a perfect driving record, who works as a vice president in a private company and has no prior insurance, will be offered a “Lowest Limits” quote on GEICO’s website for $162.18 for a six-month period. If that same woman indicates on GEICO’s website that she instead works as a cashier, she will be offered a “Lowest Limits” policy for $289.68 over six months – a 54 percent difference in price. The same switch in online rate quotes occurs if the driver changes educational attainment from college graduate to high school graduate, or from married to unmarried, or from insured to uninsured.

CFC alleged that these practices violate Proposition 103, which requires rates to be based on approved rating factors that reflect risk of loss, not on irrelevant factors such as occupation or education. California bars insurers from using prior coverage in rate setting. CFC alleges GEICO violated the Unruh Civil Rights Act, which bars discrimination based on marital status or gender.

Learn more about the CFC complaint here.

GEICO, owned by Warren Buffet’s Berkshire Hathaway, has over 1 million auto policyholders in California who pay over a billion dollars per year for their coverage.

While the agreement requires GEICO to may a monetary payment to the state of California, the Insurance Code does not allow refunds to consumers who may have been overcharged. Restitution for overcharged motorists may be available under other laws. Any California consumer who believes he or she overpaid for insurance as a result of receiving an inflated online GEICO quote should contact the Consumer Federation of California by phone at (916) 498-9608, or by email at mail@consumercal.org.

Read the settlement agreement.

Tags: California Department of Insurance, CFC, Dave Jones, Deceptive, GEICO, Insurance, Scams