Reformers call for end to discriminatory pricing in N.J. car insurance

Most drivers might assume their car insurance rates are based on their driving history and safety record. Instead, many insurers use education, occupation, and consumer credit scores to determine rates, charging higher premiums for those least likely to afford them: poor and minority drivers.

But a bill now before the Legislature could provide relief. The Fair Auto Insurance Rates Act would prohibit insurers from using factors like education, occupation, credit score, marital status, and homeownership status in setting car insurance rates.

Nearly 50 years after the Civil Rights Act of 1964 banned the practice of considering race in insurance underwriting, those factors are “income proxies” that allow insurers to discriminate against drivers of color, said Eric S. Poe, CEO of Princeton-based CURE Auto Insurance.

Poe has been working to expose this “dirty little secret” for almost two decades, testifying before state and federal lawmakers to push for a legislative fix. But New Jersey lawmakers have repeatedly failed to act, with a similar “watered-down” version of the bill going nowhere in 2006, Poe said.

“To me, it’s embarrassing and sad that there’s been no action on this,” Poe said.

Lawmakers elsewhere have acted. New York and Michigan have passed similar bills, and two federal lawmakers from New Jersey — Democrats Sen. Cory Booker and Rep. Bonnie Watson Coleman — have introduced legislation called the Prohibit Auto Insurance Discrimination (PAID) Act.

The holdup in New Jersey lies in the Assembly. The state Senate approved the bill in January, but it has languished for nine months in the Assembly’s financial institutions and insurance committee. The Assembly could act when the Legislature returns next month for a short lame-duck session.

“The question is, if the data supports what we’re saying, why have they not moved on this?” said John Harmon Sr., president of the African American Chamber of Commerce of New Jersey.

“It’s time for the men and women of the New Jersey Assembly to stand up and be held accountable,” he added. “It’s easy for Democrats to call out Mitch McConnell and Joe Manchin because they’re down in Washington, but no one wants to call out those who are blocking meaningful bills in New Jersey. It’s time for us to deal with this — and that means the governor too. He has said if the legislation comes on his desk, he would sign it. Well, he can push folks a little bit. We need an answer.”

Michael Zhadanovsky, a Murphy spokesman, declined to comment on the pending litigation. Assemblyman John F. McKeon (D-Morris), who chairs the financial institutions and insurance committee, and Assembly Majority Leader Louis D. Greenwald (D-Camden) didn’t respond to requests for comment

Research supports need for reform

Studies by the Consumer Federation of America found car insurance companies often charge higher premiums to safe drivers who rent their homes, are single, work in blue-collar professions, and have less education and lower credit scores. Black and Hispanic drivers are disproportionately impacted, researchers found. Recent studies by Insurify and Consumer Reports reported similar findings.

“When insurers base premiums on drivers’ socio-economic status, they are invariably doing so in a manner that disproportionately targets African Americans with higher prices,” said Doug Heller, a Consumer Federation of America insurance expert. “The companies will insist that they never ask for a customer’s race, but if they are serious about confronting systemic racism, it is time they recognize that their pricing tools use proxies for race that make government-required auto insurance more expensive for Black Americans.”

Others who benefit from this discriminatory practice are highly educated white-collar professionals with higher credit scores, reformers say, and that demographic skews white. Legislators may fear pushback from those constituents, who might see their premiums rise when occupation, education, and credit scores can no longer be considered, reformers say.

“So the counter argument on this is that the richest people in America will have to pay higher rates? I think the smallest violin in America is playing for them,” Poe said.

The issue has broader implications too, supporters of the legislation say.

Allowing the discriminatory practice to persist contributes to the racial wealth gap that Murphy has vowed to help abolish by establishing a Wealth Disparity Task Force, Harmon said.

New Jersey has one of the worst racial wealth gaps in the country. The net worth of a white family in New Jersey is $309,396, compared to $5,900 for Black families and $7,020 for Hispanic families, according to a report from the New Jersey Institute for Social Justice.

Owning a car is key to climbing out of poverty, according to a 2014 study by the Urban Institute. People with cars tend to live and remain in neighborhoods with lower poverty rates, higher social status, stronger housing markets, and lower health risks, researchers found. They also are twice as likely to find a job and four times as likely to remain employed, the study noted.

This is a matter that should concern all New Jerseyans, and not just those of color or with low income, because drivers who can’t afford pricey premiums may hit the roads uninsured, Harmon said.

“When you have limited disposable income, you have to make choice: Do I buy food and clothes for my kids, or do I take a risk and drive without insurance?” Harmon said. “This is not a Black or white or Hispanic issue. This is a safety issue for all of New Jersey.”