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Auto Insurers Shouldn't Charge More To Those With Less Education, Income

Home News Tribune — Tuesday, March 13, 2007


New Jersey drivers may not realize it, but some of the state's largest auto insurers are using their level of education and type of job to determine insurance rates. Worse, an effort by Sen. Nia Gill, D-Essex, to stop the practice was just halted in the Legislature, because she could not get the support of her colleagues to move the bill out of committee.

A study just released by New Jersey Citizen Action seems to confirm that the practice is being used, at least in the case of one company. The results concluded that drivers with lower educational achievement and nonprofessional jobs received higher rate quotes than those individuals with "white collar" jobs and higher education. Recent reports also confirm that others also use these criteria.

As an executive of a company who underwrites auto insurance policies in New Jersey, I know that this is not necessary. It also is important to note that not all insurers do this, for just that reason – there is no data supporting its inclusion in rate setting. Rates should be based on risk, not wealth or education.

Those who use these criteria seem to have concluded that accountants, doctors and lawyers deserve better rates than electricians, plumbers and carpenters. Yet no legitimate data has been presented to show that these occupations have a higher propensity of moving violations or at-fault accidents. Not everyone has the equal opportunity to afford a four-year college, nor obtain a white-collar job that has high earning potential – yet, you could be punished for that if you purchase auto insurance from some companies in this state.

In this situation, education and occupation seem to simply serve as proxies for race and income class. A simple glance at U.S. Census data should provide little doubt that the use of education and occupation as rating and underwriting factors result in discrimination against lower-income individuals and minorities. The end result of this practice is that those with the least disposable income, low- and moderate-income consumers, pay the highest rates.

Amazingly, certain members of the Legislature have publicly defended the practice. They claim that they do not want to "tinker" with the insurance industry and risk that these companies would pull out of the state, limiting availability for insurance. Such claims are completely unfounded when you consider that not one single auto insurer used education or occupation as underwriting factors to base rates in 2003, yet that was the year when New Jersey insurers posted their second highest profit ratio in over a decade. Additionally, State Farm's New Jersey policyholders insured by State Farm Indemnity received $130 million in dividends in December 2006 and they never have adopted the use of education or occupation for rating.

Since those who engage in this practice have refused to cease – despite public criticism – I find myself in the odd position of supporting additional regulation of my own industry. For nothing else, it will halt a practice that I personally find offensive. Yet, it also will stop the type of underwriting practices that give the industry a bad name.

The drivers of New Jersey, of all economic and educational backgrounds, deserve equal opportunity to afford to pay for their car insurance. The Legislature should be embarrassed that they have denied drivers that opportunity.

Eric S. Poe is chief operating officer for New Jersey CURE auto insurance, the fifth largest direct writer in New Jersey.

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