🚘 Some NJ drivers are paying thousands more for car insurance due to poor credit

🚘 Groups say the use of credit info in setting rates perpetuates racial inequality

🚘 The insurance industry cites a link to one's likelihood of filing a claim

Several variables such as your age and driving history, and the type of vehicle you're driving, are taken into account by insurers when determining how much you need to pay for automobile coverage.

But at least one of the variables being considered by most carriers in New Jersey and other states needs to be eliminated from the equation — because it's inherently discriminatory, according to advocacy groups and a new report from Consumer Federation of America.

On average, in New Jersey, an individual with poor credit is paying about $1,000 more per year for auto coverage than someone with excellent credit, according to CFA's report released on July 31. And in some parts of the state, the gap is much wider, according to the report.

“Not only is this unfair to safe drivers, because of longstanding and institutional biases, the use of credit history for insurance pricing leads to disproportionately higher premiums for lower-income drivers and people of color," said Douglas Heller, CFA’s director of insurance and the study’s co-author.

The national report uses New Jersey as an example to highlight the various premiums charged by insurers based on consumers' credit. In Newark, for example, the average premium for an individual with poor credit is higher than $3,500, but around $2,100 for someone with fair credit, and $1,268 for a driver with excellent credit.

"We have got to take action to eliminate this practice," Maura Collinsgru, director of policy and advocacy for New Jersey Citizen Action, told New Jersey 101.5. "It's not a crime to be poor, it's not a crime to not have access to credit, but practices like this kind of make it a crime, right?"

A handful of states prohibit the use of credit information in auto insurance pricing.

NJCA and other groups in the Garden State have been pushing for passage of legislation that would eliminate factors such as credit info, education and occupation from determining auto rates. The proposal has not seen action during the latest legislative session. A previous version was approved by the full Senate but did not move at all in the Assembly.

Are all NJ insurers using credit info when setting rates?

The weight of a prospective driver's credit info on their premium price can vary greatly from insurer to insurer. Cure Auto Insurance, based in Princeton, has gone on record to say that it does not consider "income proxies" when pricing insurance.

According to Christine O'Brien, president of the Insurance Council of New Jersey, legislation banning the use of credit info has lost momentum "due to the increasing understanding by the Legislature that multiple rating factors allow auto insurers to accurately predict risk, which benefits all drivers."

Insurance carriers don't use a traditional credit score for setting rates, but instead what's known as a credit-based insurance score. Progressive's website says this score is used to predict one's odds of filing a claim, as well as the cost of that claim.

"Auto insurers have, going back decades, seen a connection between an individual's ability to keep their finances in order and the likelihood that they're going to file an auto insurance claim," said Michael Barry, chief communications officer at the Insurance Information Institute.

The CFA report calls on state lawmakers to prohibit the use of credit information in setting auto insurance rates or determining eligibility. In the meantime, the report says, state insurance departments should devote more resources to analyzing rate filings, and "reject rate filings that unfairly discriminate based on credit information."

Report a correction 👈 | 👉 Contact our newsroom

LOOK: Here are the states where you are most likely to hit an animal

Hitting an animal while driving is a frightening experience, and this list ranks all 50 states in order of the likelihood of such incidents happening, in addition to providing tips on how to avoid them.

LOOK: Most dangerous states to drive in

Stacker used the Federal Highway Administration's 2020 Highway Statistics report to rank states by the fatalities per billion miles traveled. 

Offbeat adventures: Travel to the coolest hidden wonders in every U.S. state

Fuel your offbeat travel dreams. Stacker found the coolest hidden wonders in all 50 U.S. states (plus D.C.) using data from Atlas Obscura.

[WARNING: Under no circumstances should you enter private or abandoned property. By doing so you risk bodily harm and/or prosecution for trespassing.]

More From New Jersey 101.5 FM