Insurers Defend Job, Education as Auto Insurance Pricing Criteria in N.J.

June 13, 2006

Insurance industry representatives urged New Jersey lawmakers not to restrict insurers’ use of certain rating variables including occupation and education in the pricing of auto insurance policies, insisting that the freedom to experiment with rating factors is an essential part of a competitive marketplace.

The insurers’ urgings came during a Senate Commerce Committee hearing convened by Sen. Nia Gill, D-Essex. Gill has sponsored a bill that would ban auto insurance companies from taking education and occupation into account when setting auto insurance rates.

Five auto insurance companies in the state consider jobs and education when setting prices, according to The Associated Press.

Assemblyman Neil Cohen, D-Union, has sponsored an Assembly version of the bill. “How does what a person does for a living or where they went to school have any bearing on what kind of driver they are?” Cohen asked. “Using that information to affect what insurance rates motorists receive is discriminatory and should be halted immediately.”

However, insurance industry representatives told the lawmakers that consumers benefit when insurers compete by utilizing a variety of rating criteria.

“Competition is about permitting insurers to determine risk they will undertake and permitting consumers to choose the insurance company they want to do business with,” Richard Stokes, regional manager and counsel Property Casualty Insurers Association of America.

Stokes said insurers should be allowed to consider underwriting and rating criteria that are objective and supported by statistical evidence. “A company’s ability to properly underwrite risks is a critical component of a company’s ability to succeed in the market,” he told lawmakers. “When insurers are able to more accurately predict losses, the consumers are benefited with lower rates, more choices in the marketplace and greater market stability.”

Paul Tetrault, Northeast state affairs manager for the National Association of Mutual Insurance Companies, also opposed restrictions on insurers’ ability to underwrite freely.

“Underwriting, involving the assessment, analysis and pricing of risk, is the most fundamental function of insurance. Insurers need to be able to engage in this function as freely as possible in order for insurance markets to work properly, which ultimately benefits consumers and society in general Limitations and restrictions on underwriting freedom stifle innovation and thereby hamper competition, ultimately harming consumers and society in general,” Tetrault testified.

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