Despite initial news, rules permit use of Credit Scores for rejecting
drivers
Yesterday, Insurance Commissioner Nonnie Burnes proposed to ban some but not all discriminatory or unfair rating and underwriting factors under a new set of auto insurance regulations, and failed to adopt other vital consumer protections in the regulations.
While MASSPIRG and the Center for Insurance Research are pleased that the Commissioner has banned some unfair rating and underwriting factors, the Commissioner has opened the door to the use of a slew of other unfair factors that have nothing to do with a consumer’s driving record. Also of great concern is that despite the Commissioner’s stated reservations about the use of credit scores in insurance, her regulations do not prevent an insurer from using credit scores as a factor in determining whether to reject a driver for coverage altogether.
For the first time in over 30 years, insurance companies will be allowed to use discriminatory factors in selling auto insurance. While banning some of the most obviously unfair factors, the proposed regulations permit insurers to use many other factors that could harm low-income and minority drivers, including factors that act as proxies for the very factors banned by the Commissioner. In order to protect against discrimination and to ensure that driving record is the primary factor insurers use in setting premiums and in underwriting, it is necessary for the Commissioner to list expressly all the rating and underwriting factors that may be used by insurers.
Furthermore, credit scores and information gathered from consumers’ credit reports have only been temporarily prohibited for rating purposes and have not been restricted at all for use in denying coverage altogether. Earlier this month 10 consumer groups urged the Commissioner and the Governor to ban the use of all socioeconomic rating and underwriting factors such as credit scores, which have nothing to do with an individual’s ability to drive and which correlate with a consumer’s income level and race.
Consumer Improvements to the Proposed “Managed Competition” Regulations
1. To protect consumers against unfair and discriminatory practices and to improve the ability of regulators to protect consumers, the Commissioner should expressly list all the rating and underwriting factors that may be used by insurers. A motorist’s driving record and experience should be the only factor an insurer can use to deny coverage altogether.
2. Rates and products should be standardized, uniformly disclosed, and made accessible to the public on the Division of Insurance’s website. Each insurer’s underwriting methodology should be available on the website for public access.This will allow consumers to make informed choices and allow regulators to catch new unfair or discriminatory rating and underwriting factors.
3. Credit scores and all other socioeconomic factors must not be allowed for use in underwriting or rating.
4. The Commissioner should mandate a comprehensive plan to reduce our highest in-the-nation accident rate, which is the single largest factor driving our premiums. Without such a plan, consumers will fail to see any meaningful rate reductions in the long term.
For more information – www.masspirg.org
This proposed regulation will be the subject of a public hearing on Thursday, September 20, 2007 at 10:00 am at the Division of Insurance, One South Station, Hearing Room A (5th Floor), Boston, Massachusetts. All interested parties are encouraged to review this regulation and attend the public hearing or submit their suggestions and comments to me through the Docket Clerk at the Division of Insurance (c/o Docket Clerk, Division of Insurance, One South Station, Boston, MA 02110-2208).
