Insurance groups discriminate against N.J. drivers and the pandemic is making it worse, advocates say

Christel Deskins

It’s been more than 14 years since State Sen. Nia Gill (D-34) first sponsored a bill she hoped would stop some insurance companies from charging higher rates to New Jersey car owners who have blue-collar jobs or lack a college degree. “Sometimes change doesn’t come as quickly as we’d like,” […]

It’s been more than 14 years since State Sen. Nia Gill (D-34) first sponsored a bill she hoped would stop some insurance companies from charging higher rates to New Jersey car owners who have blue-collar jobs or lack a college degree.

“Sometimes change doesn’t come as quickly as we’d like,” said Gill, the only sponsor from the original set of bills in 2006 who is still carrying on the fight in the state legislature. “But if it’s a mission that affects public policy, my opinion is you keep working on it and you don’t give up and you put the bill in every year.”

Insurance industry representatives say some but not all companies consider a driver’s education, occupation and credit score, among many other factors when deciding on premiums because it can be a good way to predict risk and thus who should pay higher rates.

But opponents of the practice say there’s something wrong if a secretary with a perfect driving record pays more than a lawyer with a drunk driving conviction. They argue the three factors are income proxies and result in discrimination against disadvantaged people, disproportionately impacting people of color.

Gill and others who have lobbied against the practice hope their movement is gaining new momentum now, thanks to two states outlawing the practice in recent years, a push for racial justice after the killing of George Floyd, and the pandemic.

“I think the pandemic has given new importance, with millions of New Jerseyans experiencing economic hardship, this will inevitably impact their credit scores, their occupation and their employment status,” Gill said. “You will have people subject to the increased premiums based on an unforeseeable consequence of the pandemic.”

In the end of July, African-American Chamber of Commerce CEO John Harmon called on Gov. Phil Murphy to publicly support legislative efforts in New Jersey and on Capitol Hill to ban the practice.

U.S. Rep. Bonnie Watson Coleman, D-12th Dist., has co-sponsored the Prohibit Auto Insurance Discrimination Act, or PAID Act, but the House of Representatives has not acted on it. As similar efforts have since 2006, the bill faces opposition from many in the insurance industry, who argue that restricting the rate formulas will result in higher premiums for all.

“This should have been done a long time ago,” Harmon said Thursday. He noted Black residents have the lowest median income and the highest unemployment rate in New Jersey. “These are the people who can least afford it, and you want to put all these barriers in the formula for them to get auto insurance?”

A long fight

Eric Poe, owner and chief operating officer of CURE Auto Insurance in Princeton, testified on Capitol Hill in support of Watson Coleman’s bill earlier this year. It might have felt like deja vu, as he testified before the U.S. House of Representatives Financial Services Committee back in 2008, when he was still in the first few years of his crusade against insurance practices he saw some of his competitors using.

In 2003, New Jersey regulations were relaxed to allow insurance companies to use credit scores in their rate calculations, drawing companies like GEICO and Progressive to the state.

Several years later, Poe said he found evidence Geico was charging more not only to those with low credit scores, but also with blue-collar jobs or high school diplomas. He took the evidence to New Jersey Citizen Action, which issued a blistering report in 2007 claiming drivers with a bachelor’s degree and a professional job got an average discount of 38 percent from GEICO.

Eric Poe

Eric Poe, the COO of NJ PURE/CURE Insurance.Michael Mancuso

But a year later, the state’s Department of Banking and Insurance issued a 581-page report saying there was no evidence the factors were proxies for income or race. When adjusting for credit score, the study found no instance where less-educated, lower-income drivers paid more than an extra 19 percent.

Poe said the push for reform lost a lot of momentum in the Great Recession, but he feels like the time is right now.

“It feels so obvious that we’re talking about inequality,” he said. “Look, if you’re going to go ban Aunt Jemima and Uncle Ben’s which has racism in imagery, you just tell me the impact educational attainment and occupation has disproportionately on minorities, whether you’re Black or Latino.”

According to the most recent Census data for New Jersey, 24% of Black adults and 19% of Hispanic or Latino adults have bachelor’s degrees or higher, compared to 43% for white adults.

Laws prevent insurers from discriminating against protected classes, but Poe said these insurers effectively do that. It’s in insurers’ interest to lure wealthy people with lower rates and to charge more to poor people because statistically, low-income people generate more claims, he said.

Proven indicators?

Mark Friedlander, spokesman for the Insurance Information Institute, an industry association based in New York, said that insurance companies are considering a dozen or more factors, including accident history, annual miles, marital status and location, when calculating rates.

While credit score is fairly widely used, he said, education and occupation are only used by some companies. He did not have a total of how many.

“It’s unlawful to ask for that information on race, ethnicity, income level. It’s a nondiscriminatory process set in place, and these factors are not established to be discriminatory,” Friedlander said.

GEICO’s marketing department did not respond to a request for comment and Progressive referred comment to an industry group, the American Property Casualty Insurance Association. Alison Cooper, a vice president and spokeswoman for the association, reiterated that the 2008 Department of Banking and Insurance report “found these factors to be acceptable and predictive of losses.”

“Auto insurers have collected data for decades and have found that the factors of occupation, education and credit-based insurance scores are all accurate variables for predicting the likelihood and severity of insurance claims,” Cooper said. “If they were not highly accurate and actuarially justified, they would not be used and could not be used under New Jersey law.”

Friedlander said how a person handles their financial affairs, as seen in their credit score is a good indicator of risk. There is also actuarial data that shows that education and certain occupations — including ones where people are on the road a lot, or likely to be talking on a cell phone while driving — are risk indicators, he said.

Without them, rates would less accurately reflect risk and many would actually have to pay higher rates to subsidize the higher-risk policy holders, he said.

“Insurers have effectively made the case with state regulators and legislators about the negative impact of eliminating these factors would have on the marketplace and consumers in that state,” he said.

Poe and Gill argue that the state is already feeling a negative impact of the practice, as those who are least able to afford car insurance end up getting the higher quotes from these insurers due partly to these factors.

Poe believes it could be one reason the uninsured rate in New Jersey climbed from 8% in 2007, a few years after the restrictions were loosened in New Jersey, to 15% in 2015, according to the Insurance Research Council.

Harmon said it’s time Murphy, the state legislature and federal lawmakers took action.

“This state is known for kicking the can down on issues, especially those impacting people of color, people of low means,” Harmon said. “This should have been dealt with a long time ago.”

This story was corrected to reflect the signatories of the letter to Gov. Murphy.

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