Advocates Urge NJ Lawmakers to End Racial and Economic Bias in Auto Insurance Rate Setting

Bill would stop insurers from using credit score, employment & education to set premiums

Newark, NJ — State and national advocates, joined by auto insurance policyholders gathered today to highlight the strong need for the Fair Auto Insurance Rates (FAIR) Act, S-111/A-1657, which would prohibit New Jersey auto insurance companies from using residents’ education, occupation, or credit score in determining premium levels. While these factors do not overtly invoke race, pre-existing racial inequalities in educational, occupational and economic attainment ensure the same result: Black and Latinx drivers in New Jersey are more likely to pay more for, or be unable to afford, auto insurance coverage, hamstringing their economic mobility. The same is true for working class consumers of any background. A janitor with a perfect driving record is charged more for auto insurance than a doctor with a poor driving record.

“The janitors, security officers, airport workers, and school food service workers that SEIU 32BJ represents rely on their cars to get to and from work. It is not fair, that although they may be good drivers, they also may pay higher premiums because of their education level or job,” said Kevin Brown, Vice President and NJ State Director at SEIU 32BJ. “The more they pay for car insurance, the less money they have to support themselves and their families – the less money they have to put food on the table. I urge the NJ legislature to pass the NJ FAIR Act so that New Jerseyans are not discriminated against because of their education-level or job. It’s a matter of racial and economic justice.”

Dena Mottola Jaborska, Associate Director at New Jersey Citizen Action added, “The practice of charging poor and lower income people more for car insurance is incredibly unfair and only contributes to that old adage – the rich get richer, while the poor get poorer. This practice perpetuates the cycle of economic insecurity and poverty for our most disadvantaged New Jersey families, disproportionately Black and Latinx families, preventing them from securing a better future and rising to the middle class in our state.”

The bill passed the Senate Commerce Committee on October 22^nd. Prime Sponsor, Senator Nia Gill (D-34) said, “The pandemic has given new importance to how we determine insurance eligibility. Millions of New Jerseyans are experiencing economic hardship; this will inevitably impact their credit scores, occupation, and employment status. 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. The use of employment status and credit scores in calculating insurance premiums carries a severe economic consequence for working-class families. A person’s income or education has no bearing on driver safety or risk and only serves to reinforce existing inequalities.”

Thurman McKoy of West Orange, a recently retired insurance executive with Allstate and Farmers Insurance over 30 years of experience added, “The fact that discrimination in coverage rates exists is an open secret amongst insurers. Agents like me with deep personal experience know that the cost of insurance coverage is based on a person’s zipcode, as well as a person’s education, occupation and credit score, factors that have nothing to do with their driving. Oftentimes, those with the most expensive vehicles pay lower premiums than those with less valuable vehicles, purely due to these socio – economic factors. This is a form of discrimination that has dramatic and harmful consequences which contribute to racial discrimination and economic insecurity, and it must end now.”

The advocates released new data, sourced from Quadrant Information Services, LLC. (August 2020) and compiled by Consumer Federation of America that shows:

• Drivers living in predominantly Black and Latino zipcodes in New Jersey pay 139% of the statewide premium average of $1,459.69 for a 35 year old driver with a clean driving record and other standardized characteristics.
• Drivers in predominantly White zipcodes paid only 93% of the statewide premium average.
• Using credit scores in rate setting increased premiums for drivers in all zipcodes, but drivers from majority Black and Latino zipcodes had the largest premium increase.
• Drivers from majority white zipcodes with poor credit paid an annual average of $1,988.22 but drivers from majority Black and Latino zipcodes paid more than $3,000.
• Lower income drivers with median incomes below 50K pay 134% more than the statewide premium average while higher income drivers with median incomes above $150,000 paid only 87% of the statewide average premium.

“This proposed bill is a critical step toward protecting consumers from unfair discrimination and systemic racism in auto insurance,” commented Michael DeLong, Insurance Advocate at Consumer Federation of America. “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.”

Chuck Bell of Consumer Reports explained that wide disparities between Whites, Blacks and Latinos in educational attainment, professional and higher paid occupational attainment and credit scores are well documented, underlying the race and income-based disparities revealed in this data. For example:

• The percentage of white adults with a bachelor’s degree or higher is 29.3% compared to 17.7% for Black adults and 13% for Latino adults. (US Department of Labor)
• Black and Latinx families are more likely to have lower credit scores than white families. In 2017, an Urban Institute study found that predominantly nonwhite areas in 50 of 60 cities studied had median credit scores than were below 660. In comparison, predominantly white areas in only 4 of 60 cities studied had median credit scores that were below 660.

“In New Jersey, some 1.7 million residents work in occupations that have an annual median income of less than $40,000, including retail sales, janitors and home care workers.  These workers are especially likely to be required to pay higher rates for auto insurance by some insurance companies, by virtue of not holding a managerial or professional job title — even though they may be excellent drivers with no accidents or traffic violations,” he continued.

As a result of these socio-economic rating factors, a tremendous number of New Jersey residents pay extremely high auto insurance rates. A 2017 Study of the Affordability of Personal Automobile Insurance, conducted by the US Department of the Treasury, found that auto insurance is not affordable for a whopping 2.3 million New Jersey residents. There are 82 zipcodes where average auto insurance premium costs exceeded 2% of the Zip Code’s median income.

United States Senator Cory Booker and Congresswoman Bonnie Watson Coleman, and Michigan Congresswoman Rashida Tlaib, have introduced a similar bill, the PAID (Prohibiting Auto Insurance Discrimination) Act. The states of Massachusetts, New York, California and Michigan have already banned occupation and education as auto insurance premium -rating factors. And Massachusetts, California and Hawaii have banned the use of credit scores. Similar legislation is also pending in states around the country.

Chuck Bell concluded, “Four states have now banned the use of education level and occupation for auto insurance pricing, because these factors are potentially unfair to low and moderate-income drivers, and drivers of color. It makes no sense that large insurance companies such as GEICO and Progressive continue to charge more to drivers based on their education level and occupation in New Jersey, when they were required to phase out this practice in neighboring New York state in 2018.”

FAIR Presser Data Slides 12.8.20
NJ Auto Insurance Rates (FAIR Act) Fact Sheet

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New Jersey Citizen Action is a statewide advocacy and social service organization that advocates for social, racial and economic justice for all while also meeting the pressing needs of low and moderate income New Jerseyans through education and direct service.

Quote Addendum

Assemblywoman Annette Quijano (D-20), the Prime Sponsor in the Assembly, said, “Auto insurance premiums should be based on a person’s driving record and history, and not on unfair and unsubstantiated assumptions that a person with less education and financial security is riskier to ensure. We can no longer allow insurers to unfairly price gouge our state’s most economically vulnerable.”

“On an overall basis, the passage of this bill will have no impact on costs to the system as New Jersey drivers will still incur the same number of car accidents and the same amount of accident-related medical treatment, regardless of underwriting method,” added Eric Poe, COO of CURE Auto Insurance, the only New Jersey insurer who does not use education, occupation and credit score to set rates for his customers. “Instead, the redistribution of costs would be based on one’s driving history, leading to increases only for individuals with poor driving records and lower rates for those who have good ones. This would end decades of unfair rate setting that asked poor and lower income Americans to pay more based on their socioeconomic status.  A more equitable system of spreading risk is long overdue and needed now more than ever.”

Charlene Walker – Executive Director, Faith in New Jersey commented: “I have seen firsthand the economic downward spiral that Black and Latinx driver’s experience due to the immoral practice of assessing car insurance rates by arbitrary factors non-reflective of driving records.  It is almost impossible for many to overcome.  We must build a more just New Jersey where everyone has an opportunity to thrive by demanding an end to this practice that at its very core is institutional racism.”