New Jersey is taking steps to prohibit auto insurance companies from using a driver’s credit score, occupation and education as factors to establish coverage rates.
A bill recently approved by the State Senate seeks to end the industry’s use of socioeconomic factors, a practice that the legislation’s sponsors say is unfair and discriminates against low-income drivers.
The ongoing coronavirus pandemic has only reinforced the need to make a change, said State Sen. Nia Gill (D-34), one of the bill’s sponsors.
COVID Financial Fallout
With millions of residents now facing financial hardship, the inevitable changes to employment status, credit scores and homeownership could trigger potential rate increases for many during a time when personal finances are already stretched thin.
“This bill is critical to ensure people are not subject to increased premiums based on metrics that have nothing to do with driving and it will ensure drivers are not subject to increased premiums based on unforeseeable consequences of the pandemic,” said Gill.
Under S-111, auto insurers would not be allowed to assign an insured or prospective inured person to a rating tier based on homeownership, marital status, educational level, credit score, employment status or occupation.
Current Practices Are ‘Absurd’
Bill co-sponsor Nellie Pou (D-35) said, “This legislation will hold insurance companies accountable and help to ensure that our most vulnerable citizens are given fair pricing for policies.”
“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. Those that have a lower income pay more for insurance, meaning they are being penalized just for being poor,” she said.
After being approved by the Senate, the bill was referred to the state Assembly, where it is under review by the Financial Institutions and Insurance Committee.
Booker Pushes Federal Reform
On a federal level, U.S. Sen. Cory Booker (D-NJ) introduced legislation in September 2020 that seeks to ensure only a person’s driving record can be used to set car insurance rates and eligibility. A companion bill was introduced into the U.S. House of Representatives by Reps. Bonnie Watson Coleman (D-NJ) and Rashida Tlaib (D-MI).
Under the bill, the Federal Trade Commission would be responsible for making sure insurance companies comply.
“Many communities across New Jersey and our nation already face undue obstacles that are only increasing economic inequality and these unjust practices in the auto industry are only adding to those challenges,” Booker said.
A Consumer Reports analysis found credit scores play the biggest role in determining insurance premiums than a driver’s history.
A New Jersey driver with a clean driving record but poor credit could pay as much as $1,690 a year more for coverage than a driver with a similar driving history but excellent credit, according to the non-profit.
In the Garden State, top insurers reported an average rate of $3,080 for auto coverage for consumers with a clean driving record and poor credit, compared to an average of $3,043 for drivers with a drunken driving conviction and excellent credit.
Consumer Reports Comments
Consumer Report suggests “New Jersey should require insurance companies, when setting prices, to prioritize a person’s actual driving history and other driving-related factors over any other information. The key driving-related factors that should be considered include miles driven per year, years of experience behind the wheel and driving safety record.”
Credit information, the organization added, “can function as a socioeconomic buffer” and could result in good drivers with poor credit subsidizing the rates paid by convicted drunken drivers with excellent credit.
Michael DeLong, an insurance advocate at Consumer Federation of America, called the legislation “a critical step toward protecting consumers from unfair discrimination and systemic racism in auto insurance.”
“By requiring that insurance eligibility and rates be based on driving-related factors and not on unfairly discriminatory socioeconomic factors, insurance will become more affordable to safe drivers throughout the state who currently struggle to afford and maintain coverage,” DeLong said.
Chuck Bell, programs director for advocacy for Consumer Reports, said the legislation will end a practice that “magnifies the economic impacts of systemic racism” and will “help ensure that auto insurance is priced fairly in New Jersey so that drivers will be able to afford the coverage they need.”
Some states have already taken action to ban the use of certain non-driving pricing factors.
For example, Michigan’s recent auto insurance reform has eliminated the use of non-driving factors. Other states, like California, Hawaii and Massachusetts, prohibit the use of credit history in setting car insurance rates. New York disallows the use of education level or occupation as a pricing factor.