The Times, Trenton

Poor Credit Could Drive Up Rate

The Times of Trenton — Wednesday, April 28, 2004

Staff Writer

Your credit history may affect your auto insurance rates under a new policy announced yesterday by the state Department of Banking and Insurance.

Industry advocates cheered the new policy, saying it will bring greater competition among insurance carriers and result in lower rates for most drivers.

Consumer activists criticized the decision, saying it will hurt low-income and minority residents, who generally have poorer credit histories.

With the new policy, New Jersey will join about 40 other states that permit "insurance scoring," which is based on the premise that people with better credit histories are better drivers and are less likely to file claims.

"The correlation is extraordinarily strong, said John Tiene, vice president of New Jersey Skylands Insurance Cos. "People who are responsible in handling their finances tend to be responsible behind the wheel of a car."

Banking and Insurance Commissioner Holly Bakke said her goal is to make New Jersey's regulations similar to those of other states.

"We know that to attract other carriers to New Jersey and create a competitive marketplace, we have to look like the rest of the country," she said.

"There is no way, unless insurance scoring is introduced, that major carriers like GEICO or Progressive would ever look at New Jersey."

Currently Mercury General, which entered New Jersey last year, is using insurance scoring on a trial basis.

"Based on preliminary results we found people with good credit records paid $200 less than the average state premium of $1,060," Bakke said, saying Mercury's experience persuaded her to move forward and change the policy.

Tiene said the new policy will allow carriers to broaden the geographic areas in which they sell policies.

Credit scores are increasingly used by insurers, employers, utility companies and rental agencies to predict a person's reliability. Individuals receive numerical scores based on such factors as payment history, the number and types of accounts, amount borrowed, length of credit history, how often they've applied for credit lately and whether they have any bankruptcies on record.

The scores are compiled by various companies and can be inaccurate. In some cases creditors don't notify rating companies when a balance has been paid off. More than one-third of all credit reports contain errors that are not caught by consumers, according to Bank Rate Monitor.

Consumer activists said New Jersey's policy change is a bad move.

"Insurance credit scoring is going to be really detrimental for low and moderate income residents because in a lot of instances folks who are of low and moderate income and people of color traditionally have lower credit scores than other people," said Maura Caroselli, an organizer for New Jersey Citizen Action.

Bakke bristled at that attack. "For anybody to think that because you're low income or minority you don't pay your bills on time is offensive," she said.

She pointed to provisions in the new policy barring carriers from penalizing people with no credit or with credit problems caused by medical bills as well as protections for long-term policy holders who have good driving records but poor credit.

Officials at New Jersey Manufacturers Insurance Co. of Ewing, the state's largest auto insurer, said they do not plan to seek permission to use credit information as a tool in setting rates.

"We have a rating system that our policyholders and we as a company understand," said spokesman Patrick Breslin, "It's based on driving record and other risk characteristics such as age, gender, marital status and where someone lives."

Jack Blair, president of Nottingham Insurance and Financial Services in Hamilton said he is pleased by the new policy, but conceded that some of his customers would suffer.

"I have customers who have good credit histories who will benefit and some with poor records who will be harmed, but overall this is a good move," he said.

"If this encourages companies that do business in the 40 other states where they allow credit scoring to now open up in New Jersey, that's a good thing," he said.

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