NJ Auto Insurance Rates: Credit Score, Education Factors
By the time Cuqui Rivera had to renew her auto insurance policy in December 2019, the longtime activist had only heard of some of the reasons why she — a Hispanic woman with a high school diploma — could pay more than its college-educated white neighbors.
So Rivera decided, “let me be your guinea pig,” she said. “Let’s see if it’s true.
She checked the website of Liberty Mutual, the company she had worked with for at least two decades, to see if it discussed education, work history and credit rating in insurance rates. She said she couldn’t find anything.
His annual policy with Liberty Mutual cost $2,997, Rivera said. She went to CURE, the West Windsor-based insurance company, and said she found the same policy for $1,188, a savings of 60%.
That’s because CURE is the only insurance company that doesn’t consider education, employment and credit score when determining a driver’s rate, according to advocacy group New Jersey. Citizen Action.
The result of using these “indirect revenues” in rate setting is a racial and class disparity that Rivera and other advocates say amounts to widespread discrimination in New Jersey – disparities that the industry insurance does not deny but insists that they are incidental to societal realities beyond their control.
Advocates have urged lawmakers, as they have for more than a decade, to change the law so companies can no longer use these and other factors, such as marital status and whether a driver owns a home. , to determine insurance rates.
But their mission did not succeed. A bill that would exclude these factors from setting insurance rates was narrowly approved by the Senate but failed to appear in the House on the last day of the legislative session last week, meaning that he has to start the process all over again.
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That means drivers in predominantly black towns like Paterson, heavily Latino areas like Camden, and low-income towns like Lakewood will likely continue to pay higher car insurance rates than people who live nearby in predominantly white and higher-income communities such as Ridgewood, Cherry Hill and Brick.
On average across the state, drivers who live in predominantly Black and Latino ZIP codes pay nearly 50% higher premiums than those in predominantly White ZIP codes, according to the Consumer Federation of America. Drivers in predominantly low-income postcodes pay nearly 52% higher premiums on average than those in high-income areas, the federation said.
“There is a disproportionate penalty imposed on African Americans and Latinos,” said Douglas Heller, insurance expert with the consumer federation.
“Every day that delays” insurance legislation, he said, “New Jersey residents with perfectly good driving records are paying too much for insurance because policymakers are afraid of stare at the insurance companies.”
Representatives of New Jersey insurance lobby groups did not respond to interview requests, but during testimony on the bill last year, they denied any discrimination in rate setting.
Rates vary by breed throughout NJ
Fares can range from hundreds of dollars in a small area. Take a four-mile stretch of mostly white towns in the Meadowlands, for example.
According to the data, the average annual rate in Carlstadt is $1,822. It’s $1,707 next to Rutherford. And in nearby Lyndhurst, it’s $1,688.
But racial disparities are clear in New Jersey, according to a USA TODAY Network analysis of the data, which was collected in 2020 by insurance data firm Quadrant Information Services and provided by the federation.
According to the analysis, all but one of the top 25 ZIP codes with the lowest average annual insurance premiums – around $1,071 – were predominantly white, affluent suburbs concentrated in Hunterdon, Morris and Somerset counties. The single majority-black ZIP code represented a population of 258 people in a half-square mile in Bernards Township, a 68% white Somerset County town, according to U.S. Census data.
The 25 postcodes with the highest average premiums – about $2,250 – were primarily in black and low-income towns in North Jersey: Elizabeth; Fairview; Irvington; Newark; North of Bergen; Passaic; and Patson.
Rivera, a high school graduate who said she has a clean driving record and excellent credit, is half Puerto Rican and lives in northern Brunswick. The average annual rate there is $1,632, according to the data.
But if Rivera lived six miles west in Franklin Township, Somerset County, she might pay less for her car insurance. The average there was $1,537, nearly $100 less than in North Brunswick, according to data from the consumer federation.
Rivera has an additional downside though: she’s a woman. According to the data analysis, women paid on average almost $100 more per year for car insurance than men.
“I’m being discriminated against,” said Rivera, who works with multiple advocacy groups and is a manager at the Puerto Rican Action Board and project coordinator at the Latino Action Network, both in New Brunswick.
Broader factors, such as population and density, also drive up premiums in densely populated North Jersey towns where residents pay the most for car insurance. But individual factors like education and credit score mean two people living in the same city with similar driving histories can pay different rates.
Take Jonathan Forges. The 32-year-old Port Authority security guard, who emigrated from Haiti four years ago, said he had no points on his driver’s license and had completed defensive driving lessons to save money on car insurance.
Still, the $3,500 a year he pays for two cars is higher than the average paid by men in his age group in Montclair, where he lives. According to federation data, the average annual rate in Essex County’s predominantly white upscale suburb is $1,425 for a single 35-year-old male. That’s much lower for that same demographic with an excellent driving record: $842.
“We’re trying to do everything we can to reduce that, and to uncover all of this information, it’s, like, wow. Things are already stacked against us,” Forges said.
Insurance formulas deemed “valid”
The insurance industry, which has lobbied heavily against the bill, insists rate-setting is a sophisticated, scientific discipline blessed by the state watchdog, the Banking Department. and insurance.
This agency said in a 2008 report that insurance companies use more than a dozen factors to determine insurance rates, but data on race and income is not collected by insurers.
The use of education and occupation data, the agency said, was “actuarially sound.” Citing loss data from insurer Geico, the department said drivers with bachelor’s and master’s degrees were “less risky” than the general population. Black and Latino drivers were less likely to hold college degrees and “professional” jobs, according to the report, but it noted that “these groups are not isolated.”
The department also said car crashes were more common in urban centers, which have higher-than-average racial minority populations and low-income residents who typically don’t hold college degrees or professional jobs.
And credit-based insurance scores – different from typical credit scores – are predictive of claims and likely “to better match the price of insurance to the risk of loss posed by the consumer,” according to a 2007 study. of the Federal Trade Commission.
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The commission acknowledged that blacks and Hispanics are “significantly overrepresented among consumers with the lowest scores” and that this likely has an effect on what these groups pay on average for insurance. But, like the state insurance agency, the Commerce Commission said using credit scores had “little effect” as a “proxy” for racing insurance rates.
And credit scores are used along with many other components to determine rates, said Christopher Stark, who was an executive at the National Association of Mutual Insurance Companies when he testified against the bill in 2020.
“It’s not like they just stop looking at the rest of the factors. It’s in the best interest of the insurer – we take it as our responsibility – to make sure we match the risk to the rate for the automotive public, because that’s what’s fair for everyone,” Stark said.
Dustin Racioppi is a reporter at the New Jersey Statehouse. For unlimited access to his work covering the governor of New Jersey and the political power structure, please subscribe or activate your digital account today.