A number of auto insurance companies face fines and other sanctions from the Hawaii Insurance Division (HID) for violating a 28-year-old law barring discrimination in setting premiums.

According to Paul Yuen, the supervising attorney for the HID investigation, auto insurance companies in Hawaii, including American International Group (AIG), Allstate Insurance Co., and State Farm Mutual Auto Insurance Co. — three of the five largest auto insurance companies operating in the state — were found to be using criteria to set auto insurance premiums that had been prohibited since 1973.

In Hawaii, says Yuen, insurers are only allowed to set premiums based on a person's driving record and not "in whole or in part on race, creed, ethnic extraction, age, sex, length of driving experience, credit bureau rating, marital status, or physical handicap."

"It doesn't appear that any insurer was using all of these criteria, but many were using information prohibited in the statute in determining auto insurance premiums," says Yuen.

According to Yuen, AIG used age, Allstate used length of driving experience, and both Allstate and State Farm used credit bureau information in setting auto insurance premiums.

AIG and State Farm have agreed publicly to stop using the prohibited criteria, but Allstate has appealed the HID order to stop using length of driving experience in its rate-setting criteria, says Yuen.

Representatives of Allstate and State Farm both admit to using credit information in determining whether or not to issue an auto insurance policy, but deny that they used them to set premiums.

Darcy Reinhart, a spokesperson for Allstate, says that the insurer is in compliance with Hawaii law and does not use either length of driving experience or credit information in setting premiums.

State Farm says that while it has been using credit information as part of a formula to determine whether or not to issue a policy, it believed that use of credit information in that way was not prohibited in the same way that it is for setting premiums.

"Our interpretation was that credit information could be used in underwriting," says Dick Luedke, a spokesperson for State Farm. "But we've stopped using it pending the outcome of hearings on this issue."

The Hawaii Insurance Commissioner is considering all of his options for punishing the insurance companies found to be in violation state law, and it is likely that fines will be levied, says Yuen.

"The Commissioner applauds those insurers that have voluntarily complied with state law, but it doesn't mean that there won't be fines in the future," says Yuen.

Representatives for AIG declined to comment on the Hawaii investigation.