Congress Considers Taking Action on Insurers Using Credit to Decline Coverage
In a statement released by U.S. Representative Luis Gutierrez (D-Ill.), he noted that Congress is currently examining the use of consumer credit history by insurers to set premiums. Since companies often use credit scores and reports to exclude those who are likely to file a claim, Congress is trying to determine whether this is a fair practice.
Insurance Companies Use Credit Scores for Pricing and More
It is well known that life and auto insurance companies – and possibly health and home insurers – use credit scoring when considering new policyholders. In fact, according to the American Insurance Association, about 90 percent of individual insurers use credit information in their risk assessment and pricing as it helps to predict the likelihood of a claim being filed.
However, David Snyder, vice president and associate general counsel of the association, says that the use of credit information in this way is “heavily regulated,” and “has proven to be very important for the market.” Congressional officials are not so sure though, prompting them to take a closer look at the issue.
Hearing Held on the Issue
Gutierrez explained that the Subcommittee on Financial Institutions and Consumer Credit held a hearing on Wednesday to take a closer look at the issue. He said that as of the meeting, “We are watching very closely and will take action if and when we find their practices out of line.”
Currently, 48 states currently regulate the use of credit scores for insurance and most do not allow for credit-based insurance scores to be the sole basis for increasing rates or denying/canceling/not renewing coverage. However, those who have better scores typically receive preferred treatment when applying for coverage.
Some states like Maryland and Wisconsin have tried to veer from the credit scoring standard but haven’t had a great amount of success. Until Congress sees a problem with what insurance companies are doing, it may be difficult for individual states to stop the practice.