Insurers Warn N.J. Not to Restrict Use of Education, Job Status in Rating

March 6, 2007

New Jersey drivers could see a return to high prices and fewer choices for their insurance if legislators limit the use occupation and education as rating factors, insurers warned lawmakers at a legislative hearing this week.

Senate Bill 1714 would represent a "significant step backward for New Jersey, and it could very well be the first step toward a return to a moribund market," said Paul Tetrault, state affairs manager for the National Association of Mutual Insurance Companies.

The legislation would prohibit insurers from using occupation and education in the underwriting process. But according to NAMIC, such restrictions could hamper competition and thereby hurt consumers.

"Consumers benefit when insurance companies compete for their business," Tetrault said in testimony submitted to the Senate Commerce Committee. "Insurance companies are able to compete for business when they have the freedom to engage in the underwriting process by utilizing their independent judgment and analysis regarding a wide range of risk factors. By far, the best recent example of these principles is the New Jersey private passenger auto insurance market."

Tetrault suggested the proposal could mean individuals in certain occupations, such as teachers, librarians, or office workers would pay more for insurance than they would otherwise. The measure might also restrict the operation of companies that that serve specific occupational groups and prevent insurance companies from offering students discounts based on good grades, he added.

Also testifying in opposition to the measure, the Property Casualty Insurers Association of America agreed that passing the bill would signal a return to the days of a troubled auto insurance market in the state.

"This bill represents a major step backwards from the auto insurance reforms passed in 2003 that are helping to increase competition and drive down rates," said Richard Stokes regional manager and counsel for PCI. "Consumers don't benefit when arbitrary restrictions are placed on actuarially justified underwriting factors. Restrictions of this type can limit competition, stifle innovation and ultimately force consumers to pay more for insurance."

Stokes argued that the use of education and occupation information by insurers to underwrite and rate insurance has been approved by various state regulators, most recently in Maryland, where the insurance department found that a company's use of education and occupation was reasonably objective and confirmed that the use of these factors did not have a disparate impact on any protected class.

"PCI members support the ability of insurers to consider underwriting and rating criteria that are objective and supported by statistical evidence," said Stokes. "All evidence indicates that those insurers that choose to use education and occupation information do so for the same reason they use any other piece of demographic information, because that information is predictive of insurance loss and allows for more accurate underwriting and pricing."

According to PCI, personal characteristics such as age, gender and marital status have long been recognized as accurate predictors of insurance loss. "Factors such as education and occupation are no different," said Stokes.

Sources: NAMIC
PCI