Updated April 7, 2004 12:01 a.m. ET
Your occupation could be a plus for your auto-insurance rates.
Insurance companies long have offered discounts to groups of people they see as good customers, a practice known as “affinity discounting.” Such discounts traditionally target structured groups such as employers, unions or membership organizations.
Now, more insurance companies are broadening the definition of who might qualify for affinity rates to include large groups of professionals. Discounts vary from state to state but tend to reduce insurance rates by between 5% and 10%, and sometimes by as much as 15%. The biggest discounts are in California, where competition is toughest.
At Farmers Insurance Group of Cos. residents of certain states can receive a 5% auto-insurance discount if they are police officers, firefighters, registered nurses, scientists, engineers, physicians or surgeons.
Esurance, an online auto-insurance unit of White Mountains Insurance Group Ltd. , launched an occupational-discount program in California last month for educators, scientists and engineers. If the pilot program in California succeeds, the company will consider rolling out a similar discount to drivers in 15 other states, says Gary Tolman, Esurance’s president and chief executive.
California has been a popular proving ground for the concept. Occupational discounts have been accepted practice there since 21st Century Insurance Group instituted discounts for engineers as early as the 1950s. More companies joined the fray in the late 1990s as competition for auto insurance in California grew more intense. The American Automobile Association, for example, started offering occupational discounts to California drivers in 1999.
21st Century itself has been expanding its occupational discounts. This year the Woodland Hills, Calif., insurer opened the program to Illinois, Indiana and Ohio when it started doing business in those states. In 2002, the company expanded its discount in some states to include architects, pharmacists, physicians and dentists. The traditional group consists of engineers, scientists and educators.
Farmers Insurance began testing its discounts in California in 2000, says Jim Westerman, the Oklahoma state manager who helped launch the California program in 2000. Since then, it has received approval from 25 additional states — most of which were approved in the past year. The Los Angeles insurer plans to launch the program in every state where it sells auto insurance by the middle of next year, including New York, Maryland, Pennsylvania and North Carolina.
If the Farmers Insurance program succeeds, the company also will consider expanding it to its homeowners insurance line, says Gina Magee, the head of the insurer’s affinity-marketing division.
Companies wanting to offer broad occupational discounts — which most of the time require job verification — will likely have fewer regulatory hurdles to clear, since Farmers Insurance, 21st Century and some others have paved the way in many states.
The underlying concern of regulators has been that such discounts would be viewed as discriminatory, says Dave Snyder, assistant general counsel at the American Insurance Association in Washington. Indeed, companies that do this often have to prove to regulators that premiums collected, minus the discount, will be sufficient to support claims paid to the preferred group.
Unlike other programs, Esurance doesn’t verify the occupation of every person who applies for the discount. Rather, it conducts a random sampling — say 50 people for every 500 who apply — to ensure that people are being honest about their jobs, Mr. Tolman says.
Verification is one of the main reasons these discounts have been slow to catch on, says Daniel Finnegan, president of Quality Planning Corp., a San Francisco company that conducts background checks for auto insurers.
When you give a discount to a pre-existing group, it is easy to see whether they qualify, Mr. Finnegan says. When you broaden the definition, verification gets harder.
Apr 7 2004
Wall Street Journal Interview
Insurance companies long have offered discounts to groups of people they see as good customers, a practice known as “affinity discounting.” Such discounts traditionally target structured groups such as employers, unions or membership organizations.
Now, more insurance companies are broadening the definition of who might qualify for affinity rates to include large groups of professionals. Discounts vary from state to state but tend to reduce insurance rates by between 5% and 10%, and sometimes by as much as 15%. The biggest discounts are in California, where competition is toughest.
At Farmers Insurance Group of Cos. residents of certain states can receive a 5% auto-insurance discount if they are police officers, firefighters, registered nurses, scientists, engineers, physicians or surgeons.
Esurance, an online auto-insurance unit of White Mountains Insurance Group Ltd. , launched an occupational-discount program in California last month for educators, scientists and engineers. If the pilot program in California succeeds, the company will consider rolling out a similar discount to drivers in 15 other states, says Gary Tolman, Esurance’s president and chief executive.
California has been a popular proving ground for the concept. Occupational discounts have been accepted practice there since 21st Century Insurance Group instituted discounts for engineers as early as the 1950s. More companies joined the fray in the late 1990s as competition for auto insurance in California grew more intense. The American Automobile Association, for example, started offering occupational discounts to California drivers in 1999.
21st Century itself has been expanding its occupational discounts. This year the Woodland Hills, Calif., insurer opened the program to Illinois, Indiana and Ohio when it started doing business in those states. In 2002, the company expanded its discount in some states to include architects, pharmacists, physicians and dentists. The traditional group consists of engineers, scientists and educators.
Farmers Insurance began testing its discounts in California in 2000, says Jim Westerman, the Oklahoma state manager who helped launch the California program in 2000. Since then, it has received approval from 25 additional states — most of which were approved in the past year. The Los Angeles insurer plans to launch the program in every state where it sells auto insurance by the middle of next year, including New York, Maryland, Pennsylvania and North Carolina.
If the Farmers Insurance program succeeds, the company also will consider expanding it to its homeowners insurance line, says Gina Magee, the head of the insurer’s affinity-marketing division.
Companies wanting to offer broad occupational discounts — which most of the time require job verification — will likely have fewer regulatory hurdles to clear, since Farmers Insurance, 21st Century and some others have paved the way in many states.
The underlying concern of regulators has been that such discounts would be viewed as discriminatory, says Dave Snyder, assistant general counsel at the American Insurance Association in Washington. Indeed, companies that do this often have to prove to regulators that premiums collected, minus the discount, will be sufficient to support claims paid to the preferred group.
Unlike other programs, Esurance doesn’t verify the occupation of every person who applies for the discount. Rather, it conducts a random sampling — say 50 people for every 500 who apply — to ensure that people are being honest about their jobs, Mr. Tolman says.
Verification is one of the main reasons these discounts have been slow to catch on, says Daniel Finnegan, president of Quality Planning Corp., a San Francisco company that conducts background checks for auto insurers.
When you give a discount to a pre-existing group, it is easy to see whether they qualify, Mr. Finnegan says. When you broaden the definition, verification gets harder.
By Daniel • Timeline, Uncategorized