Did you know that your education level, credit score, and job can be used to determine how much you pay for auto insurance?
Some New Jersey lawmakers say it discriminates against low-income drivers, and the state Senate last week passed a bill banning it.
The sponsors of the bill in the Senate (S111) argue that using these factors to calculate insurance risk imposes unfairly high rates on low-income drivers. Auto insurance companies should set rates based on the driver’s driving habits, not their socioeconomic status, they said.
“It is absurd to even think that there are people who pay more for auto insurance just because they have a low credit rating,” Senator Nellie Pou, D-Passaic, said in a statement. “Those with lower incomes pay more for insurance, which means they are penalized just for being poor. “
Existing laws here allow auto insurers to “prey on New Jersey’s most vulnerable populations,” added Senator Teresa Ruiz, D-Essex. “Low-income customers are charged a lot more, regardless of their driving history, which is unacceptable. “
Consumer reports found in a 2015 analysis that credit score may play a more important role in determining insurance premiums than almost any other factor. A New Jersey driver with a good driving history but bad credit can pay up to $ 1,700 more per year for insurance than a driver with a similar driving history but excellent credit, according to the organization .
It’s like you have a drinking and driving conviction on your record, he said.
Most consumers don’t know that credit information is used to calculate insurance prices, and polls show the majority don’t agree that education level and occupation play a role in their rates, said Chuck Bell from Consumer reports.
“People intuitively understand that your fares have some relation to your ability to drive a car safely and whether you have a stack of speeding tickets or accidents,” Bell said. “But when you tell them that people are looking at their credit rating, their employment level, and their education, it’s kind of a shock to most people.”
Auto insurance companies have not been able to show a causal link between credit rating and safe driving, Bell said, adding that credit rating is strongly correlated with income and race, however. That is why insurance pricing should focus on driving-related factors such as number of kilometers driven per year, years of driving experience and driving safety record, a. -he declares.
Testifying before a Senate committee last year, Gary La Spisa, vice president of the Insurance Council of New Jersey, argued that insurance companies do not rely on traditional credit scores that “measure credit constraints “but on credit-based insurance scores that measure” the length of credit. ” And have been shown to be predictive of future insurance claims.
The State Department of Banking and Insurance regularly reviews rates to ensure that they are “actuarially 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 of the National Association of Mutual Insurance Companies. Furthermore, he said, the use of occupation is neither arbitrary nor simply “white collar against blue collar”.
“The profession as a rating factor is actuarially strong, it varies by company and creates the very competition we need in our insurance market in New Jersey,” he said.
John Harmon Sr., president of the New Jersey African American Chamber of Commerce, urged the Senate Commerce Committee in October to end the “discriminatory practice” of including the profession, education and grades of credit in determining insurance premiums.
“I ask you to 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, fairness, and respect for black men and women across our state who are trying to coexist 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 allowed to rely on these economic factors in 2004, the population of uninsured motorists of New Jersey doubled.
Senator Gerald Cardinale, R-Bergen, warned that the legislation could then send New Jersey back to the “bad old days,” when insurance companies did not want to do business in the state.
Four states already prohibit insurers from using education and job type to calculate premiums, and four prohibit taking credit information into account, according to Consumer Reports.
The bill would prohibit auto insurance companies from using property, marital status, education level, credit rating, employment status or profession in assigning rates. It was passed by the Senate 22-9 Thursday. He now goes to the Assembly.
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