Bill Could Help Poor Drivers Afford Coverage

CentralJersey.com — Tuesday, February 3, 2009


The final element in a multi-year auto-insurance-reform effort could leave working class drivers paying higher rates.

Insurance companies, who were granted the right in 2003 to use non-driving factors like education and occupation to set rates, can now deny coverage to drivers for a broad array of reasons, as long as they are not discriminating based on race, income or geography. The elimination of what is called the "take-all-drivers" rule, according to consumer advocates, will push more motorists into the state's assigned-risk pool, pushing drivers' rates upward, making insurance even less affordable to the working class and poor.

The state's Department of Banking and Insurance and insurance companies doing business in the state say the reform effort, which deregulated the insurance industry, has resulted in more companies doing business in the state and nominally lower rates for drivers. Insurance companies, because they are competing for policies, will have no choice but to offer the best rates available, which helps all drivers.

Except that insurance companies have an incentive to purge policy holders they view as higher risks. The insurance industry, according to New Jersey Citizen Action, has identified lower-income drivers as "likely (to) produce higher reported losses to insurance companies," meaning that they cost those companies more in settlements.

This would seem to justify the companies' pricing structure but, as Citizen Action points out, the correlation "does not constitute sound 'actuarial loss data'" — i.e., that they "are the principal factors responsible for the loss ratio correlation."

Citizen Action posits an alternative analysis of the loss figures: "A person with higher disposable income is more likely to settle an accident without the insurance company than a person who earns less and has less disposable income," the consumer group wrote in a 2007 report, adding that half of all auto accidents that involved "only property damage are not reported."

"The importance of this data is that only individuals with a certain level of income have the luxury of not reporting accidents and can instead pay for the damage themselves," the report said. In essence, poor drivers — identified by occupation and education — are being punished because they have no choice but to file a claim for a fender-bender.

The rules further tilt the playing field in a state badly segregated by race and class, because it makes driving that much more expensive for residents of the state's cities, who, as studies show, already tend to pay more in finance charges for new and used cars or keep their older-model, gas-guzzling cars on the road and pay more in gas and repairs.

These rules need to be revised to eliminate occupation and education from the list of characteristics insurance companies are allowed to use to set rates. That is what legislation introduced by state Sens. Nia Gill (D-Essex), Joseph Vitale (D-Middlesex) and Shirley K. Turner (D-Mercer) would do. The bill — S389 — was referred to the Senate Commerce Committee in January 2008, where it remains. It deserves a hearing.

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