An alarming truth: As unemployment rises, so do car insurance rates

Eric Poe. (File photo)

How quickly our world can change. It seemed like just yesterday our biggest concern was planning spring break or summer vacation. Today, our worries are far more dire. Where will my next paycheck come from? How much available credit do we have on our credit cards? Do we have enough to make it through the week? The month?

With a barrage of stories breaking about the industries that are hardest hit by the COVID-19 pandemic, and the many unpublicized casualties of this medical crisis, a critical story is that an additional 3 million Americans are now out of work. And these unemployed individuals may be facing an issue that has been widely ignored by the lawmakers — even before the pandemic, many insurance companies charge unemployed and lower-income Americans more for their car insurance. My hope is that this issue will finally get the attention it deserves.

This issue is now more serious than ever because, with the increase in unemployment and a decrease in credit scores (because of rising credit card debt), more people will end up paying more for car insurance. Along with the spike in unemployment, the fact that insurance companies charge the unemployed and those with lower credit scores more will hopefully spur our legislators to finally take action. Inevitably, the 3 million newly unemployed will quickly see that, as their credit card debt goes up, their credit score will immediately drop. Why? Because the second-largest influence of credit scores is the amount of available credit. For drivers who have gone from gainfully employed to unemployed, it is only a matter of time before their car insurance rates increase dramatically. But, with your urging, the federal government could put an end to this practice.

Regardless of whether these unemployed drivers avoid a speeding ticket or car accident, they will soon feel the impact of the use of “income proxies” by the majority of car insurers — companies like GEICO, Liberty Mutual and Progressive charge more for those who are most likely to have a lower income and credit score. This is simply unacceptable.

Where is the danger? Americans need look no further than New Jersey. Prior to 2003, credit scores, education, occupation and employment status were not allowed to be used in conjunction with car insurance rates. Once allowed, the number of uninsured drivers — those who cannot afford to pay for car insurance — has nearly doubled, rising from 8% to 15%. Yes, in New Jersey alone there are already over 1 million uninsured vehicles on the road. With the new coronavirus-impacted economy and a record number of newly unemployed reported in New Jersey, this number will only rise, unless these industry practices are banned.

Not only are the newly unemployed going to likely see higher rates, the use of credit card debt will also compound the costs they must shoulder every month. Why? Because credit score is a key factor used by insurance companies to determine both insurance coverage and correlating rates.

A common practice among some of the largest insurance providers is to have several auto insurance companies — one offering lower rates; the other with substandard risks and higher rates. Just how bad is it? Recently, InvestigateTV ran various auto insurance quote scenarios through GEICO’s website. They used the same type of vehicle and address for each. The only variables that changed were driving history, education level and occupation. One applicant was a female doctor with a DUI conviction; the other a waitress with a high school degree and a clean driving record. The result? The doctor with the DUI had a lower rate. Simply unacceptable.

Now more than ever, I am invigorated to push our legislators to prohibit this practice — as we continue to face such notable changes in our everyday lives. Together, we need to stand up against these unknown underwriting practices and support the federal Prohibit Auto Insurance Discrimination Act, or PAID Act, which would prohibit the use of income proxies by car insurers.

Join us in supporting PAID by visiting to find out what you can do to help.

Eric Poe serves as chief operating officer for CURE Auto Insurance. As a licensed active New Jersey attorney and Certified Public Accountant, Poe is a recognized commentator in the insurance field.

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