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Controversial Auto Insurance Rate Policy Under Fire in New Jersey
March 21, 2006
Auto insurance company Geico is under fire in New Jersey stemming from a situation that could have nationwide auto insurance ramifications. The company is accused of setting insurance costs to individuals based on their education and job status. While the practice may be legal in New Jersey - the state loosened their insurance laws in 2003 - it is also becoming more controversial as details emerge.
The practice of giving lower insurance rates to people with more education and higher paying jobs recently was exposed to the public by people like Eric Poe. Poe is the Vice President of NJ Citizens United Reciprocal Exchange (NJCURE), a non-profit organization which also provides auto insurance. Poe found that blue collar workers or “unskilled” laborers were being charged as much as 40 percent more than doctors, teachers and other highly educated workers, regardless of driving history.
Poe has also revealed that other insurers are either already practicing this policy in New Jersey or are considering it. Auto insurer Liberty Mutual utilizes education in making decisions on insurance rates for their clients in New Jersey. Allstate Insurance is also looking into factors such as education when billing their clients.
Critics of the practice are already lobbying legislators to make it illegal and to rewrite New Jersey’s auto insurance laws. Critics contend that basing auto insurance costs on either education or occupation does not make sense because neither of the factors has to do with a person’s ability to operate a motor vehicle. New Jersey Assemblyman Neil Cohen, D-Union, is already at work on introducing legislation in order to ban the practice of basing insurance costs on such things as education or occupation.
Proponents of the insurance laws say that New Jersey faces more companies refusing to operate in that state if they are not allowed to include elements such as education or occupation in determining costs. Before the New Jersey Auto Insurance Competition and Choice Act was passed in June 2003, auto insurance coverage in New Jersey was scarce because of the state’s convoluted and complex laws surrounding coverage. Since 2003, there have been more insurers operating in New Jersey.
The results and fallout from this controversy remain to be seen but the whole country is watching. Auto insurance companies such as Geico are avoiding the controversy but many say that since the practice is not illegal they are not committing any infraction. Critics have asked Geico for data from studies they’ve done regarding the correlation between driving and education but so far no information has been released.
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