A bill was recently introduced in the New Jersey Senate that would prohibit the use of education and occupation as rating factors in automobile insurance underwriting. This leads to taking a closer look at the debate over the years and insurance industry’s contention that accurate premium rates require a comprehensive list of risk factors.
There was significant debate on this issue in New Jersey dating back to 2007 where industry argued that valid underwriting factors are necessary to rate certain risks and predict loss. Education and occupation were cited by industry as actuarially valid predictors of risk and would not unfairly discriminate against consumers. In a 2008 report issued by the New Jersey Department of Banking and Insurance, their actuaries reviewed loss experience data and determined that the use of occupation and education was actuarially valid.
The same issue was raised in New York as in 2017. Governor Cuomo charged that the practice of rating drivers on the basis of education and occupation is discriminatory. Consumer advocates opposed insurers that argued they require as many proven underwriting factors as available to provide all consumers the lowest possible rates. The result was the New York Department of Financial Services (DFS) finalized a regulation in December 2017 aimed to protect drivers from unfairly discriminatory auto insurance rates. Insurers in New York then began eliminating any continuing prior use of education level or occupational type to comply with the DFS regulation.
The debate is expected to continue in New Jersey and likely other states regarding the use of education and occupational factors in auto insurance. Few states specifically reference the use of education and occupation in their insurance statutes. The proposed legislation could lead to an in-depth look at the impact of a variety of rating factors and their effect on market stability, competition and pricing.