Education News

Auto insurers raise rates based on your job, education, credit score. N.J. Senate says it’s discrimination.

Written by Mamie M. Arndt

Did you know your level of education, credit score and job can be used to determine how much you pay for auto insurance?

Some New Jersey lawmakers say that discriminates against lower-income drivers, and the state Senate last week passed a bill banning it.

Senate sponsors of the bill (S111) argue using those factors to calculate insurance risk saddles lower-income drivers with unfairly high rates. Auto insurance companies should be establishing rates based on a driver’s driving habits and not their socioeconomic status, they said.

“It is absurd to even think that there are individuals out there paying more for car insurance just because they have a low credit score,” Sen. Nellie Pou, D-Passaic, said in a statement. “Those that have a lower income pay more for insurance, meaning they are being penalized just for being poor.”

Existing laws here allow auto insurers to “prey on New Jersey’s most vulnerable populations,” added Sen. Teresa Ruiz, D-Essex. “Low-income customers are being charged significantly more regardless of their driving history and that is unacceptable.”

Consumer Reports found in a 2015 analysis that credit score can play a bigger role in determining insurance premiums than almost any other single factor. A New Jersey driver with a clean driving record but poor credit may pay as much as $1,700 a year more for insurance than a driver with a similar driving history but excellent credit, according to the organization.

That’s akin to having a drunken driving conviction on your record, it said.

Most consumers aren’t aware that credit information is used to calculate insurance prices, and polls show that the majority don’t approve of education level and occupation playing into their rates, said Chuck Bell of Consumer Reports.

“People intuitively understand that your rates have some relationship to your ability to operate a car safely and whether you have a pile of speeding tickets or accidents,” Bell said. “But when you tell them people are looking at the credit score, job level and education, that’s kind of a shock to most people.”

Auto insurance companies have not been able to demonstrate a causal link between credit score and safe driving, Bell said, adding that credit score is, however, strongly correlated to income and race. That’s why insurance pricing should emphasize such driving-related factors as the number of miles driven per year, years of driving experience and driving safety record, he said.

Testifying before a Senate committee last year, Gary La Spisa, vice president of the Insurance Council of New Jersey, argued that insurance companies rely not on traditional credit scores that “measure credit stresses” but on credit-based insurance scores that measure “credit tenure” and have been proven to be predictive of future insurance claims.

The state Department of Banking and Insurance regularly reviews rates to ensure they’re “actuarily justified, predictive of risk and not unfairly discriminatory,” he noted.

Several studies have come to the conclusion that credit-based insurance scores are not a proxy for race or income, added Christopher Stark, National Association of Mutual Insurance Companies. In addition, he said, the use of occupation is neither arbitrary nor simply “white collar versus blue collar.“

“Occupation as a rating factor is actuarily sound, it varies by company, and it creates the very competition that we need in our insurance market in New Jersey,” he said.

John Harmon Sr., president of the African American Chamber of Commerce of New Jersey, urged the Senate Commerce Committee in October to put an end to the “discriminatory practice” of including occupation, education and credit scores in determining insurance premiums.

“I ask that you muster the courage to right this systemic wrong,” he said. “I believe in capitalism. I believe in free enterprise. But I also believe in fairness, equity and respect for Black men and women throughout our state that are trying to co-exist and live meaningful lives with others in New Jersey.”

Eric Poe, CEO of Princeton-based Cure Auto Insurance, agreed that these practices are discriminatory, and said that since auto insurers were permitted to lean on these economic factors in 2004, New Jersey’s uninsured motorist population has doubled.

Sen. Gerald Cardinale, R-Bergen, warned then the legislation could send New Jersey back to “the bad old days,” when insurance companies didn’t want to do business in the state.

Four states already prohibit insurers from using education and job type to calculate premiums, and four prohibit credit information from being factored in, according to Consumer Reports.

The bill would bar auto insurance companies from using homeownership, marital status, educational level, credit score, employment status or occupation in assigning rates. It passed the Senate 22-9 on Thursday. It now advances to the Assembly.

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Samantha Marcus may be reached at [email protected]

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Mamie M. Arndt