Op-Ed: Memo to insurance industry colleagues, profits shouldn’t supersede ethics

Eric S. Poe | May 12, 2021 | Opinion
It’s time to stop charging blue-collar workers with a high school education more for car insurance than doctors and lawyers with worse driving records
Eric S. Poe

You have never had an accident. There are no speeding or other tickets on your record. Regardless, if you don’t have a college education, work at a blue-collar job, have a low credit score or even rent your home, you are likely paying an unfairly high price for your car insurance.

That’s right. Even if you have a spotless driving record, New Jersey allows car insurance companies to charge more based on your life circumstances. In fact, a driver who has not had a ticket or accident but only has a high school education and rents an apartment can pay up to 40% more than the same driver who is a homeowner with a college degree. These practices force tens of thousands of safe New Jersey drivers to pay far more than they should if car insurance were simply based on how well you drive. Importantly, because such coverage is required to drive in this state, you can be fined and even imprisoned if you drive without car insurance. In other words, as a public policy we are allowing people to be punished for having a lower income or less formal education.

As a member of the car insurance industry, I exposed this dirty, and frankly embarrassing, little industry secret in 2006 because this practice is wrong and it hurts members of our society who cannot (and should not) shoulder additional unfair financial burdens. By basing rates on “income proxies,” such as occupation, level of education, credit score and home ownership, my industry members have built their business models to attract and provide the best rates only to higher-income drivers, regardless of their driving record. Why? Simply put, they produce the highest profits for big insurers and buy the most insurance products because they have other assets like homes and boats. The next time you hear “bundle, bundle, bundle” in a car insurance ad, realize this — poorer people have nothing to bundle. At the time, my industry colleagues said, “Eric, you’re talking ethics. This is business.” My reply? “I didn’t know you couldn’t do business ethically.”

Pushing the poor down the ladder

The unthinkable truth is a greater percentage of lower-income and minority populations tend to fall into the category of individuals who get charged more for car insurance because of their education level or occupation. This is more than just patently unfair; it is socially unjust. Regardless of whether you’re rich or highly educated, this practice of my industry needs to stop. We cannot profess to be a “land of opportunity” while secretly kicking people down the ladder and pretending they have the same chances as everyone else for the sake of simple profits.

Consider this: According to a recent national Consumer Reports research paper, a number of national car insurance companies charged higher rates to those who simply didn’t have a higher level of education or had traditionally lower-paying jobs. This was also seen in an investigation in which a doctor with a DUI conviction would pay less for car insurance than a waitress with a high school diploma and clean driving record. Does that seem fair to you? If you’re not convinced, would it shock you to learn that the largest study ever done on car accident frequency and occupational groups showed that the highest number of accidents are among doctors, lawyers, architects and accountants?

While these factors do not overtly invoke race, preexisting and systemic racial inequalities in education, occupation and economic attainment ensure the same result: Black and Hispanic drivers in New Jersey are more likely to pay more for, or be unable to afford, car insurance coverage. Such biased rate-setting can further hamstring the economic mobility of those communities, and those urban drivers who cannot afford auto insurance and thus cannot drive to work. The same is true for working-class residents of any background or those who now find themselves unemployed due to the pandemic.

A chance to make things right

Now, New Jersey has the perfect opportunity to do the right thing and end this discriminatory practice. The state Senate recently passed the Fair Auto Insurance Rates (FAIR) Act, (S-111/A-1657), which would prohibit New Jersey car insurance companies from using residents’ education, occupation, marital status, home ownership status or credit score in determining premiums. It now awaits action in the Assembly Financial Institutions and Insurance Committee.

This is a bill that has widespread support, including from the African American Chamber of Commerce of New Jersey, the Statewide Hispanic Chamber of Commerce of New Jersey, New Jersey Citizen Action, and the Service Employees Union (SEIU 32BJ), whose Vice President and State Director Kevin Brown notes, “The more (our members) pay for car insurance, the less money they have to support themselves and their families. 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.”

With the country focused on diversity and equality, other states have stepped up. Look back to 2018 when New York car insurers stopped using educational attainment and occupation in rate-setting, the cost to each driver was a penny — yes, 1 cent — while it made car insurance more affordable for those with lower incomes. The time for New Jersey to move forward and correct this gross inequity is now. This is an issue where every person can make a difference. Take action now to end social and racial injustice in car insurance. I strongly urge you to learn more about these unfair practices and contact your state legislators, telling them it’s time, and frankly overdue, to mandate fairness in New Jersey’s car insurance marketplace by supporting the FAIR Act.