Insurance firms deny criteria are illegal

By Frank Cho
Advertiser Staff Writer

Some of Hawai'i's largest auto insurers are disagreeing with the state's claims that they broke state law by using people's credit history, age or marital status when determining premiums for some drivers.

State Insurance Commissioner Wayne Metcalf said last week that an initial review of policies at some of the insurers found many had used discriminatory criteria, in violation of state law, in setting auto insurance rates for some drivers.

At least one class-action lawsuit has been filed in Honolulu against one of the insurers by a private attorney. Another such suit is expected to be filed today against an insurer in the wake of the state's investigation.

Some insurers cited by the commissioner said the state is using a very narrow interpretation of the statute.

"Allstate disagrees with that charge. We are in compliance and not in violation of the statute," said Darcy Reinhart, a spokeswoman for one of the largest auto insurers in the state. Metcalf accused Allstate Insurance Co. of using people's credit history in determining premiums. Reinhart said the insurer plans to continue with business as usual.

State law prohibits insurers from using race, creed, ethnic extraction, age, sex, length of driving experience, marital status or physical handicap in setting rates. 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 consumer advocates.

When state insurance regulators started surveying hundreds of companies licensed to offer auto insurance in Hawai'i last month, about 150 responded and most of those said they did not use discriminatory criteria in assessing driver premiums.

But Metcalf said audits of insurance policies found insurance companies providing coverage for more than half of the state's motorists were using prohibited criteria when charging premiums.

According to the insurance division's investigation, some of the charges against insurers that have responded include:

• AIG Hawaii, one the state's three biggest insurers, illegally used drivers' ages in setting rates.

• DTRIC, another major Hawai'i insurer, was illegally using drivers' marital status.

• State Farm Insurance Cos., the largest insurer in the state, was illegally using credit bureau information.

• Progressive Insurance said it does not use a customer's credit rating to determine premiums, but the company's Web site says it does.

• Allstate Insurance, which last year was found in court to be in violation of using length of driving experience as a criteria, has appealed that case but continues to use the criteria in determining premiums.

Metcalf said DTRIC, AIG and State Farm have agreed to stop using those criteria in their analysis for consumer policies but may still be subject to fines. An investigation into Progressive is under way.

"There was a specific issue regarding our use of credit history," said Leslie Kolleda, spokeswoman for Progressive Insurance. "But we don't use credit histories to determine premiums, only in determining whether to accept a customer and set billing plans."

AIG was among the insurers that said they will stop using the practices that were being questioned by the state until the two sides can sort the things out.

"We just have a disagreement with the insurance department on that. In the meantime we have voluntarily discontinued the practice," said Mike Onofrietti, vice president and actuary for AIG Hawaii, which the insurance commissioner said was using age to determine premiums.

Only GEICO has been cleared so far, Metcalf said. First Insurance, Island Insurance and USAA Insurance are still being inspected. The companies, along with State Farm, AIG, Progressive and Allstate, control more than 85 percent of Hawai'i's auto insurance market.

Metcalf said charges against major auto insurers could reach $10,000 each time an insurer illegally used prohibited criteria to calculate a driver's insurance premium.

The state also said that two major policy writers, Hartford Underwriters Insurance Co. and RLI Insurance Co., did not respond to the survey. On Monday, Metcalf started fining those two companies $1,000 a day. But RLI and Hartford said they were never notified about the insurance division's survey and should not be fined.

"There was a communications problem obviously. The insurance department's initial letter and a subsequent follow-up certified letter failed to reach us, so we didn't know to respond to the inquiry," said Sue Honeyman, a spokeswoman for Hartford Insurance, which has about 38,000 insured drivers in the state. "Under the circumstances and the fact that we acted in good faith, we do not anticipate the (insurance) department will proceed with the fine."

Steve Tate, a claims manager with RLI, said his company, which has about 2,000 policies in Hawai'i, thought it had responded to all requests from the insurance division and believes it has been in compliance.

"Just tell us what we need to do and we'll do it. We don't want any problems," Tate said.

Meanwhile, the state's findings have drawn reaction from residents. On Wednesday, a class-action lawsuit was filed in Honolulu alleging that five Progressive Insurance companies overcharged Hawai'i drivers by basing their premiums on credit reports or some other prohibited criteria.

Bruce Wakuzawa, the attorney who filed the complaint for Cory Miprano, said he could not comment on the suit because the case was now in litigation. The complaint is seeking general and punitive damages against Progressive and attorneys' costs.

Thomas Grande, an attorney with Davis Livingston Bickerton Grande, said he plans to file a second class-action suit later today against State Farm.

"We think it is reprehensible that State Farm would use someone's monetary position and credit report to set rates," Grande said. "It discriminates against those members of our society least able to protect themselves."

Grande said estimates from similar cases on the Mainland indicated that premiums could be 10 to 50 percent higher than normal at companies that use credit report to help set premiums.

Metcalf said his office will continue to investigate auto policies from the biggest insurers to the smallest policy writers.

Frank Cho can be reached at fcho@honoluluadvertiser.com or 525-8088.