CFO Alex Sink photo

Volume 4 Number 7
February 16, 2007


CFO Alex Sink delivered Friday the following letter to Commissioner Kevin McCarty regarding the recent hearing on education and occupation as rating variables in automobile insurance policies:

February 16, 2007

Mr. Kevin McCarty
Insurance Commissioner
Office of Insurance Regulation
200 East Gaines Street
Tallahassee, FL  32399 

Dear Commissioner McCarty: 

Thank you for holding a hearing last week to evaluate how education and occupation are currently being used as rating factors in automobile insurance policies.  I share your concern that these factors have the potential to unfairly discriminate against minority or low income residents of our state and respectfully request your careful consideration of testimony presented by Mr. Stephen Alexander of the Insurance Consumer Advocate’s Office.   

In particular, I respectfully request your attention to the following recommendations:   

  1. Establish a Definition of Disparate Impact-- The Office of Insurance Regulation (OIR) should establish a definition of disparate impact.  An underwriting criteria or rating variable that results in a high percentage of minority or low-income drivers would constitute prima facie evidence that this variable is a proxy for prohibited classes, and its use by insurers should be prohibited.  For example, if 80% or more of Florida construction workers are minority or low-income drivers, then their occupation should not be used for underwriting or rating their auto insurance policies.

In addition, the definition of disparate impact should prohibit the use of underwriting or rating variables that have a high correlation with income.  For example, if it is found that there is a high correlation between education and income (after controlling for other variables such as gender, age, marital status, occupation, race and ethnicity) then the use of education as an underwriting or rating variable should be prohibited.

It is my understanding that the U.S. Census Bureau has available Florida-specific current information on a wide range of topics including educational attainment, gender, age, marital status, occupation, income, race and ethnicity.   I would encourage OIR to make maximum use of this information rather than requiring insurers to request sensitive information from their policyholders. 

  1. Require Insurers to Demonstrate Fair Rates-- OIR should require all insurers to demonstrate that they are not overcharging certain classes of drivers.  While correlations exist among variables used in automobile insurance underwriting and rating (gender, age, credit rating, marital status, education, occupation, etc.), an insurer should not apply those variables in a manner that unfairly penalizes policyholders.  For example, the 21-year-old male, who is less likely to have an advanced degree than is a 40-year-old male, should not be charged twice for both his age and his lack of advanced education. 

Instead, according to Mr. Alexander, various multivariate statistical techniques such as generalized linear and minimum bias models provide effective controls that eliminate these kinds of redundancies in automobile underwriting and rating.  OIR is urged to require insurers to employ such models and provide evidence to OIR that they are not placing excessive reliance on any underwriting criteria or rating variable beyond that indicated by these types of models.  

Our goal should be to allow the use of cost-driven criteria for calculating sound rates, while ensuring that underwriting and rating variables are not stacked so as to create – even inadvertently – an unfair or discriminatory premium. 

My staff and I look forward to working with you and your office to ensure that all Floridians are treated fairly by their auto insurers. 


Alex Sink
Chief Financial Officer
State of Florida

cc:  General Bob Milligan