Asbury Park Press

Your Job, Education Level, Credit Rating May Cost You More In Car Insurance

Group, Company Fight New Rules

Asbury Park Press — Thursday, January 22, 2009


An auto insurance company and an activist group are fighting new rules that allow insurers to use a driver's education, occupation and credit rating as factors to determine the cost of coverage or whether a policy will be issued, even to those with clean driving records.

The change in state regulations took effect Jan. 1, formally allowing insurers to use those criteria, instead of just a person's driving record, as the basis for setting rates.

The change was part of insurance reform to eliminate state requirements that insurance companies must "take all comers" as long as they meet nine eligibility points, said Eric S. Poe, chief operating officer of the nonprofit NJ CURE auto insurance.

Some major companies in the state insurance market have used credit, education and occupation as criteria already. The practices hadn't been used in the state until 2003.

"We don't believe there is any co-relation between driving habits and credit scores," Poe said while meeting with the Asbury Park Press editorial board Wednesday. "If they want to engage in that debate, then give us the co-relation between occupations and moving violations."

A bill that would prohibit the use of those factors has been sponsored by state Sen. Nia Gill, D-Essex, but it has failed to be voted out of committee for three years, Poe said. Assemblywoman Bonnie Watson Coleman, D-Mercer, has introduced a companion bill in the Assembly.

Under the new rules, drivers with good records can be denied car insurance and not know why, said Eve Weissman of NJ Citizen Action, who has studied the issue.

"It's a dangerous road we're traveling down," Weissman said. "People have the right to know if they're being given a higher rate because they don't have a higher degree or a white-collar job."

Instead of safeguarding consumers, Weissman said, the state is moving in the direction of an unregulated market in which drivers can be charged a higher rate and not be given the reason.

"If you ban the use of education and occupations, there would be no more (of an increase) in accidents in New Jersey, and insurance company losses would not be affected," Poe said.

Poe said lower-income drivers and those with blue-collar jobs get hit the hardest by such rate criteria.

The criteria change was contained in the 2003 insurance reform act, which was passed to encourage more insurance companies to do business in the state and to end the trend of insurers leaving the state. But Poe said the marketplace changed after national rates for accident claims for private passenger cars dropped over three consecutive years.

"Less accidents means more profit," he said. "Countrywide, (insurance company) profitability in every state increased from 2003 onward, promoting competition."

In 2007, Citizen Action conducted a study using a free insurance quote feature on Geico's Web site. Citizen Action researchers entered the same information, but changed the education and occupation.

Some comparisons revealed that a lower education level alone produced up to a 61% higher price quote, compared to someone with a college degree, even when all other factors stayed the same, according to the study. The researchers collected information based on 400 quotes.

In addition, Poe said a study by Florida insurance regulators found rates could be 22 percent higher using those factors.

Insurance companies prefer to cover affluent drivers because they're likely to buy other products such as homeowners' insurance and umbrella coverage, Poe said. Such drivers also are more likely to pay for minor accident repairs out of pocket, rather than claim it, he said.

Poe said he's also concerned that drivers who can't afford higher insurance rates will drive without coverage, which is required by law.

While nondriving factors are used in other states, reform efforts are starting in other places, including on the federal level; Poe has been asked to testify before a House subcommittee. He said a Pennsylvania legislator has introduced a bill to ban the use of education as a factor.

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