AS UNEMPLOYMENT CONTINUES TO RISE, SO DO CAR INSURANCE RATES
Eric Poe, Esq., CPA, Chief Operating Officer, CURE Auto Insurance
This piece was featured on NJ.com.
How much our world has changed. It seemed like just yesterday, our biggest concern was budgeting for summer vacation. Today, even as we begin to “re-open” cautiously, our worries remain dire with the long term consequences unknown.
The impact of COVID-19 is staggering, and the residual effects regionally and nationwide is incalculable. Whether it is the report of tens of millions of Americans now unemployed or the nearly one million New Jersey residents who have filed for unemployment, the numbers are unfortunately continuing to rise.
What may surprise you is that whether the recently unemployed person was a waitress, receptionist, construction worker, or salesman, these individuals will likely end up paying more for a major and necessary expense -- car insurance. The dirty little secret in the industry is many large auto insurers use occupational status and consumer credit scores as key factors to determine car insurance rates instead of what should be the most important factor -- how safely a person drives. This practice of using these “income proxies” disproportionately hurts poor and minority drivers. If you’re one of the newly unemployed and previously worked in a lower-paying job, there’s a very good chance your car insurance rate will go up.
Sadly, it has taken a global pandemic like COVID-19 to bring this insidious practice to light and draw attention to the injustice of using “income proxies” in determining how much to charge for car insurance. Even as certain states like West Virginia are proposing certain exemptions to ensure that insurance scoring during this period will not impact car insurance rates for those who are lose their jobs, the question remains – why is this only reprehensible and unfair now? Why should income proxies ever be used even during non-COVID 19 times?
While 15 years ago, I may have been the original whistleblower, speaking out nationally against this, today it is even more concerning because a rise in unemployment typically results in lower credit scores. When individuals lose their jobs, they rely on their credit cards even more and increase their debt. More debt leads to a drop in their credit scores and then it’s only a matter of time before their car insurance rates increase dramatically, regardless of whether you drive safely.
That’s what happens when a majority of large car insurers charge more for those who are likely to have lower income and credit scores. This use of “income proxies” by insurers is unacceptable, especially when 49 states mandate auto coverage. Now, with your help, New Jersey legislators and the federal government could put an end to this.
When testifying in front of the United States House of Representatives Financial Services Committee in early March 2020 ~ just prior to the rise in COVID-19 ~ I spoke out against these objectionable practices. Due to the drastic rise in unemployment, the fact that an even greater number of people will now pay more for basic auto coverage will hopefully spur our legislators to finally take action.
What is the real harm? Americans need look no further than New Jersey. Prior to 2003, credit scores, education, occupation and employment status were not used to determine car insurance rates. Once allowed policies were not affordably priced for blue collar workers or the unemployed, and the number of uninsured drivers nearly doubled ~ rising from 8% to 15%. That’s over 1,000,000 uninsured vehicles in New Jersey alone. With the new Coronavirus-impacted economy and a record number of newly unemployed New Jersey residents, this number of uninsured drivers will surely rise unless these industry practices are banned.
Scarier still, the average consumer will not even know that they are paying more for car insurance because of their employment status. This practice of driver profiling allows large auto insurance companies to charge poorer drivers more and wealthier drivers less, no matter the person’s driving record.
Other states like New York and Michigan have taken the lead in banning these practices. At a time of unprecedented financial hardship in the face of the current pandemic New Jersey legislators need to follow and end predatory business practices by large auto insurers. Now it’s even more important to push our legislators to action. Together we need to stand up against these hidden underwriting practices by supporting the federal Prohibit Auto Insurance Discrimination Act, an act that would prohibit these practices.
Eric Poe, Esq., CPA serves as chief operating officer for CURE Auto Insurance. As a licensed active New Jersey attorney and certified public accountant, Mr. Poe is a recognized commentator in the insurance field, testifying before the United States House of Representatives Financial Services Committee in Washington D.C. in 2008 and 2020, the New Jersey Senate and Assembly, the Florida Office of Insurance Regulation, the New Hampshire Legislature as well as before the National Coalition of Insurance Commissioners. He has also appeared nationally on CNBC, Fox Business News, and regionally on ABC, CBS, NBC and WPHL as an authority in the field of insurance.