Auto insurance firms face thousands in fines
By Frank Cho
Advertiser Staff Writer
State regulators will hit companies that insure more than half of Hawai'i's drivers with thousands of dollars in fines next week for illegally using criteria such as credit history and marital status in determining auto policy premiums.
The fines come after a three-month state investigation of the auto insurance industry found widespread violations of Hawai'i insurance laws that prohibit using criteria such as a person's age, gender, credit history or marital status in determining premiums.
"What we have here is a situation where we are faced with auto insurers who know what the law is and chose to ignore it," said state Insurance Commissioner Wayne Metcalf. "If they don't like the law, they should go to the Legislature and have it changed."
About 30 companies are facing fines that could total $300,000 or more. Nine of those companies, insuring more than 85 percent of Hawai'i drivers, were found in violation of state laws and are facing some of the highest fines, state insurance regulators said.
Regulators declined to name the insurers because they have not yet been notified. Letters to insurers notifying them of the investigation's results and the fines are being mailed this week. Insurers will have 10 to 15 days to respond.
Regulators said insurers writing 100 auto policies or more in Hawai'i are being fined $10,000 each if they agree to accept the fine and stop the practices found to be in violation of state law. Insurers with fewer than 100 policies are facing $5,000 fines.
Fifteen insurers were late responding to the state's request for information and are facing similar fines; six insurers with more than 100 policies each did not respond at all. They also could be fined.
If an insurer chooses to dispute a fine, an administrative hearing could be held. But Metcalf said the state would then seek fines for each individual policy violation the insurer is found to have committed, which could drive an insurer's fines into the millions of dollars.
State investigators say nearly all of the insurers contacted by regulators during the course of the investigation have agreed to stop using criteria considered illegal under state law, and said some drivers may see their rates drop as a result.
Metcalf said he has not determined what other action he might take, or whether the findings of the investigation could mean refunds for Hawai'i motorists.
"We are still looking at that issue and trying to determine what authority we have to order refunds to consumers," Metcalf said.
About 175 companies are licensed to write auto insurance policies in Hawai'i, but only a small percentage actually do, Metcalf said.
Insurers contacted Friday said they were not aware of the investigation's findings or fines and could not comment about specific penalties.
In its initial investigation findings in September, regulators said State Farm Insurance Cos., the state's biggest auto insurance carrier, was found to be illegally using credit bureau information in setting rates.
"We have said that we have disagreed with the position the (insurance) division has taken on certain issues. Until we see what the commissioner has to say we really can't respond," said Carolyn Fujioka, a spokeswoman for State Farm.
Also in its initial findings, the state said it found some insurers illegally using marital status, credit history, ages and length of driving experience to set rates.
Hawai'i's insurance code prohibits insurers from considering race, age, ethnic extraction, creed, length of driving experience, marital status, credit bureau ratings or physical disabilities when determining premiums. Nationwide, however, more than half of all auto insurance companies are believed to use credit scoring in setting rates, a practice that has drawn fire from some consumer advocacy groups.
GEICO Insurance, the state's third-largest carrier with about 17 percent of the auto insurance market, was one of the companies cleared in the investigation's initial findings.
"There is some ambiguity in the statute," said Tim Dayton, general manager for GEICO in Honolulu. "You can either follow the law or not. The advantage we have is our underwriting and rating is electronically done, so it is easy to tell if we are following the state law."
Credit scores, derived from a consumer's credit background, are a relatively quick and inexpensive way for insurers to underwrite and assess risk. Insurers say it increases competition by enabling more companies to operate nationwide, while allowing them to reward financially responsible clients with the best rates.
But consumer advocates nationwide want its usage reined in because insurers, who are generally not required to disclose how they apply the data, could use credit histories unfairly. They also argue that credit scoring often rewards white, affluent consumers while penalizing the poor and minorities.
The state investigation into auto insurance premiums was triggered after an article in The Advertiser in August quoted a State Farm official saying the company used credit bureau information as a factor in determining local drivers' premiums.
Metcalf said that after state regulators found State Farm was violating state law they launched a wider investigation.
In the wake of the investigation's initial findings, at least two class-action lawsuits have been filed on behalf of Hawai'i drivers seeking refunds from some companies on a portion of drivers' premiums.
Trial dates have not yet been scheduled in those cases.
Reach Frank Cho at 525-8088, or at fcho@honoluluadvertiser.com.
