New Jersey resident Anna “Cuqui” Rivera, a high school graduate who works as a labor and civil rights activist and moonlights as a DJ, was paying almost $3,000 annually for auto insurance with one of the big companies. Now, she pays almost $2,000 less for coverage on her 2016 Jeep.
The difference? Her new, smaller insurance company doesn’t take into account her education level or occupation in setting her rate.
A bill in the New Jersey legislature would prohibit all auto insurance companies from considering “non-driving” factors such as education, occupation or credit score in determining rates. A handful of states already have such bans, and more states have been considering them.
Currently, most insurance companies use those criteria, along with driving records, mileage driven and other factors including age and gender to set rates. Consumer advocates say using non-driving factors punishes people with lower incomes and people of color, who disproportionately have lower education levels, hold lower-paying jobs and have lower credit ratings.
Insurance companies argue that if they didn’t consider those criteria, everyone’s rates would increase, including those who already have high premiums.
New Jersey has the lowest rate of drivers without insurance, at 3.1%, according to the Insurance Information Institute, an industry organization. The figure shows that state residents can buy affordable auto insurance under the current system, New Jersey Assembly Majority Leader Lou Greenwald, a Democrat, told the New Jersey Monitor in December, so the law may not need changing. The state Senate approved the bill last session but it died in the House. Sponsors have filed it again this session.
Auto insurers Geico, Progressive and Liberty Mutual — the company initially used by Rivera — quoted higher rates on average for people with less education, according to a 2021 survey by Consumer Reports. Geico and Progressive also quoted higher prices to service workers compared with managers and executives, the report found.
Stateline reached out to all three companies for comment and received no responses.
“What does your education, occupation and income have to do with how you drive?” Rivera, mother of six and grandmother of 29, said. She has a clean driving record and good credit. She works two jobs and moonlights as a disc jockey, “DJ Lady C.”
But the trade association American Property Casualty Insurance Association maintains that all those factors are “valid predictors” of the companies’ risk in insuring clients.
“It’s our view that as long as a factor adds to the assessment of risk, and doesn’t violate anti-discrimination laws, it is a factor companies can use,” David Snyder, vice president and assistant general counsel of the association, said in an interview.
If states eliminate some criteria, customers who are deemed less likely to claim damages would subsidize those who pose a greater risk of filing claims with the company, he said.
“You compensate that by weighting other factors or otherwise looking at risk. It’s a shifting around of costs. Better risks pay more than they should, and the worse risks don’t pay what they should,” Snyder said.
But a study of Michigan’s major auto insurance overhaul law, which was implemented in 2020, showed premiums dropped for most drivers, at least initially. The changes eliminated education, employment and credit score as risk factors, among other changes to personal injury coverage and the implementation of “no fault” insurance for liability.
The website thezebra.com, which serves as a comparison shopping site for insurance buyers, found in its 2023 state-by-state auto insurance rankings that Michigan residents saw average annual rates drop from $3,106 in 2019 to $2,535 in 2020, an 18% decrease. But rates increased 4% in 2021 to $2,639, the report showed.
Part of that uptick may have been insurance companies finding other ways to incorporate income and education information without directly asking those questions, advocates for eliminating such criteria say.
I’m disappointed that the rest of the industry and the rest of the state legislatures have not been able to pass these bills against what hurts the lowest-income drivers in a state.
– Eric Poe, CURE Auto Insurance owner
Companies can use geographic regions to estimate premiums or create “affinity groups” for which they offer discounts. For example, members of a trade group, such as those for doctors or lawyers, or Ivy League alumni, might get better rates than others. Advocates say those discounts may be a way to entice affluent buyers to “bundle” their other insurances such as for a home or a boat with the same company.
Eric Poe, owner of New Jersey-based CURE Auto Insurance, bucks his industry on the issue. Poe has testified in several states that non-driving factors should not be considered. He has begun writing policies in Michigan since its insurance overhaul law went into effect. He has also testified before Congress, backing a 2020 federal bill by New Jersey Sen. Cory Booker, a Democrat, that would ban policies that include non-driving factors. That bill has not moved.
“I’m disappointed that the rest of the industry and the rest of the state legislatures have not been able to pass these bills against what hurts the lowest-income drivers in a state,” Poe said in an interview. “I’m the person who ratted out my own industry on the use of non-driving factors.”
Poe, whose company wrote Rivera’s cheaper policy, said other companies want to consider occupation, income and credit criteria because it helps weed out more expensive customers, such as those who are more likely to file claims for small amounts of damage to their cars in an accident. Wealthy customers often pay for small amounts of damage out-of-pocket, to avoid insurance rate increases.
“If you can eliminate the bottom 10% of income earners … you take away a lot of the volatility and unpredictability of our business,” he said.
Carmen Balber, executive director of nonprofit advocacy group Consumer Watchdog, which has investigated the issue, said wealthy professionals get the good deals. “Grocery cashiers, bus drivers — they are never on the list. These are blatant proxies for racism and income discrimination that have no place in the insurance industry.”
California, Hawaii and Massachusetts have permanently banned the use of credit scores in determining auto insurance premiums, according to the Consumer Federation of America. Nevada issued a temporary ban on the use of credit information to increase premiums during the COVID-19 pandemic. The ban was upheld by the Nevada Supreme Court and will last through May 2024.
Washington state issued a permanent ban on using credit information in setting insurance rates, but a court struck it down last year.
California, Georgia, Hawaii, Massachusetts and New York ban the use of education and occupation in setting auto insurance rates, while Montana and North Carolina ban education only, according to thezebra.com.
But in California, many companies offer discounts to “affinity groups.” California Insurance Commissioner Ricardo Lara in 2019 investigated the use of those groups and found that less affluent, less formally educated consumers are less likely to benefit.
Lara called on insurance companies to extend their affinity group discounts to lower-paid workers, and to stop categorizing customers by ZIP codes.
“Your zip code, education, or job should not determine whether you can obtain an auto group discount,” he said.
Snyder, of the insurance association, said insurers calculate discounts simply by assessing risk.
“All of this is subject to actuarial standards within the companies and rate regulatory agencies of every state department,” he said. “The activists are looking at this as a political issue. We’re not interested in ‘political pricing.’ We are interested in the risk of loss transferred to the insurance company.”
In Colorado, Democratic Gov. Jared Polis signed a bill in 2021 broadly rejecting discrimination in auto and other insurance on the basis of race, color, national origin and other descriptive factors. The law also called on the Division of Insurance to investigate whether other forms of discrimination, such as non-driving criteria, were being used to disadvantage some categories of people.
The department has begun a series of hearings on the issue, mandated by the law, with an eye to revamping the use of non-driving criteria.
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.