Few people in Grand Prairie, Arlington, Mansfield, Fort Worth, Hurst, Euless, Bedford, or other places across Tarrant County like the use of credit scoring to get insurance. It is allowed in Texas.
The Insurance Journal ran a story on October 6, 2011, titled “Mass. Agents Gathering Signatures for Insurance Credit Score Ban.”
The article tells us that a Massachusetts independent agents group is confident that banning auto insurers’ use of credit scores and other socioeconomic factors will become law in coming months.
According to the article, The Massachusetts Association of Insurance Agents (MAIA) said it is preparing member agencies to start gathering 69,000 signatures to register voters to put this question on the 2012 state ballot.
Massachusetts is already one of a few states with strict policies on the use of credit scores and other socioeconomic factors. Regulators there will not approve rate filings for auto or homeowners insurance that include the use of credit scoring. But supporters of the ban want it signed into law so that a different administration will not change it.
Only one state, Hawaii, has a law that bans the use of credit reports for auto insurance underwriting and rating, according to the Insurance Information Institute. Proposition 103, in California, prohibits the use of a credit score for rating auto policies unless specifically allowed by the regulator.
Washington State, passed a law in 2002, prohibiting cancellations after 60 days and non-renewals based on credit scores. Maryland bans the use of credit in homeowners policies and in auto insurance underwriting decisions on existing business.
So far, 26 states have adopted laws and regulations based on a model law by the National Conference of Insurance Legislators (NCOIL), according to the Property Casualty Insurers Association of America.
This law requires insurers to disclose to consumers that a credit report may be used and to notify the policyholder in compliance with the Fair Credit Reporting Act when credit is the basis for an adverse action. It prohibits the use of credit information as the sole basis for refusal to insure, to non-renew or cancel. It also bans the use of disputed data or information identified as medical collection accounts in the credit report. And it encourages insurers to take into account extraordinary life events, such as catastrophic illness or the death of a spouse.
Credit factors are used because insurers and actuarial studies have shown a consistent link between low credit scores and auto insurance claims. Actuarial studies have shown that how a person manages his or her financial affairs is a good predictor of insurance claims. Most people have no idea they are beneficiaries of credit-based insurance scoring.The insurance company, Nationwide, states that studies show incorporating a credit-baased score and credit history allows the company to better predict insurance losses. Other rating factors in addition to credit that influence auto insurance premium include: age or driving experience; how the vehicle is used; driving and claims history; make and model of the vehicle; and geographic location. According to Hartford, Conn., based insurance research firm Conning & Co., more than 90 percent of all insurers use credit information when determining premiums.
This is an issue that is not going to go away. People for credit scoring say it is necessary for the insurers to properly evaluate risk. Those people against credit scoring say that it unfairly discriminates against those people who have smaller incomes.
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