An Alarming Truth: As Unemployment Rises, So Do Car Insurance Rates

 

An Alarming Truth: As Unemployment Rises, So Do Car Insurance Rates
Eric Poe, Esq., CPA, Chief Operating Officer, CURE Auto Insurance

How quickly our world can change. It seemed like just yesterday, our biggest concern was budgeting for summer vacation. Today, our worries are far more dire. Is my family safe and healthy? Where will my next paycheck come from? How much credit do we have on our credit cards? Do we have enough to make it through the week?

With a barrage of stories breaking about industries hard hit by the COVID-19 pandemic, one of the most critical may be that there are now an additional three million Americans out of work. What may surprise you is that whether the recently unemployed was a waitress, receptionist, construction worker, or salesman, these individuals may end up paying more for car insurance - simply because they are now not working and previously worked in lower-paying jobs – due to the fact that occupational status and credit scores are key factors used by many insurers to determine rates.

Hopefully this practice will finally get the attention it deserves.

While 15 years ago I may have been the original whistleblower, speaking out nationally against this practice, it is now even more concerning because of the rise in unemployment and the corresponding decrease in credit scores. Inevitably the three million newly unemployed will quickly see that as their credit card debt goes up, their credit score will immediately drop.

Why? Because the second largest influence of credit scores is the amount of available credit. Specifically, while payment history (i.e., paying on time) represents 35% of one’s credit score, credit utilization (or the amount of one’s credit line that is already used) weighs in at 30%. Subsequently, for drivers who have gone from gainfully employed to unemployed, it is only a matter of time before their car insurance rates increase dramatically, regardless of whether they drive safely.

That’s the impact of the practice of a majority of car insurers, including GEICO, Liberty Mutual, and Progressive, who charge more for those who are likely to have lower income and credit scores. This use of “income proxies” by insurers is unacceptable and I have been urging the government to prohibit this practice, especially when 49 states mandate auto coverage. Now, with your help, the federal government could put an end to this practice.

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. 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.

Where is the danger? Americans need look no further than New Jersey. Prior to 2003, credit scores, education, occupation and employment status were not allowed to determine car insurance rates. Once allowed, even though GEICO and Progressive flooded the market, 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 will only rise unless these industry practices are banned.

The impact of COVID-19 is staggering, and the residual impact regionally and nationwide is indefinite. Close to home in New Jersey, Governor Phil Murphy said that on Monday March 16th alone, there was “a record number of 15,000 applications for unemployment benefits.” (1)

Scarier still, the average consumer will not even know that they are paying more for car insurance because of their employment status. A common practice among some of the largest insurance providers is to have several auto insurance companies ~ one offering lower rates; the others with higher rates. As admitted by a Liberty Mutual representative at an open hearing in Florida, occupation, employment status, and education are determinants as to which of the multiple companies would provide coverage to a consumer. (2)

Just how bad is it? Recently, InvestigateTV ran various auto insurance quote scenarios through GEICO’s website, using the same vehicle and home address for each. The only variables that changed were driving history, education level, and occupation. One applicant was a female doctor with a DUI conviction; the other a waitress with a high school degree and clean driving record. The result? The doctor with the DUI had a lower rate. Simply unacceptable.

Over the past 16 years, I have made a commitment to expose such practices by shedding light on the fact that the country’s largest car insurance companies use income proxies as a basis for determining one’s rate.

Now, in the face of the current pandemic, I am even more motivated 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. Join us by visiting Unfaircarinsurance.org to see how you can help.



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.

(1) PIX 11, March 17, 2020 (https://www.pix11.com/news/coronavirus/record-number-of-unemployment-applications-crashed-nj-system)
(2) Florida Office of Insurance Regulation, Subcommittee on Oversight and Investigations of the House Committee on Financial Services, May 21, 2008