Car Insurance

Insurers’ use and potential abuse of policyholders’ credit history has grabbed the attention of state lawmakers this year and several are seeking to restrict or ban the practice.

Freshman Rep. Mike Reynolds, R-Oklahoma City, said policyholders should be able to learn more about their credit rating and its impact on their insurance than current law allows.

“It’s not that I am trying, necessarily, to ban credit ratings,” Reynolds said. “I’m at least trying to make them reveal how they arrive at them. Because let’s face it, if they make a mistake, how would somebody ever even know?”

Reynolds said he became interested in the issue a year ago when he received his homeowner and automobile insurance renewals with one policy giving him an “A” rating and the other giving him a “C” rating. When Reynolds obtained his credit report, “It appeared to me to be sparkling” and did not explain the different ratings. When he called his insurance agent, Reynolds was told the agent couldn’t explain how the rating was determined. When he called the Insurance Department, he received the same response.

Reynolds said House Bill 1629 will require insurers to provide more information on how they develop credit rating scores. Reynolds said he does not believe the use of credit histories should be banned entirely, but he worries that consumers are left unprotected in the current system.

“My intent is to have it revealed how the credit ratings are calculated,” he said. “Because it’ll get itself banned if they’re being calculated improperly.”
Rep. Mark Liotta, R-Tulsa, said his personal experience with credit reports convinced him that they should not be used by insurers. When Liotta obtained his credit rating while refinancing a home mortgage, he found it was filled with major errors.

“We found mistakes all over the place,” Liotta said. “They had my wife living in Austin, Texas. We’ve never lived in Texas. They had me living at a house in Tulsa that I’ve never lived at.”

Although the report didn’t have any mistakes relating to his payment history, Liotta said the number of other “off the wall” mistakes convinced him the report was an unreliable basis for determining pricing.

“They say that they can show a relation between people that have bad credit and people that make a lot of claims,” Liotta said. “My response to that is: So what? You’re selling a product and that product has a price and the credit that I bring to the table to me just has no bearing.”

House Bill 1659, by Liotta, would ban all use of credit reports in developing policy prices.

Insurance officials are aware of the public’s growing distrust. Former state Rep. Dan Ramsey, now executive director for the Independent Insurance Agents Association, has asked Rep. Susan Winchester to carry a bill addressing those concerns this year.

“Their concern is if they don’t do something, if they’re not proactive, then there will be a real concerted effort to probably eliminate the credit checks completely,” said Winchester, R- Chickasha.

She said insurers want a “balance” struck between consumer protection and the right of insurers to charge higher rates to high- risk policyholders.

House Bill 1751, by Winchester, is based upon a model drafted by the National Conference of Insurance Legislators and creates the Use of Credit Information in Personal Insurance Act.

The bill prohibits insurance companies from using an insurance score calculated using the income, gender, address, zip code, ethnic group, religion, marital status, nationality, disabilities or physical handicaps of the consumer as a factor. The bill also prohibits insurers from denying or canceling a policy based solely on credit history and prevents an insurer from basing renewal rates solely on credit history. It also states that an insurer cannot take an adverse action against a consumer because he or she does not have a credit account.

The bill would apply to personal insurance lines, including private passenger automobile, homeowners, motorcycle, mobile-home owners and noncommercial dwelling fire insurance policies, personal excess or personal umbrella policies and boat, personal watercraft, snowmobile and recreational vehicle policies.

Winchester’s legislation appears to address concerns recently raised by members of the State Board for Property and Casualty Rates. In a meeting in early January, two board members said they were concerned that insurers could use credit histories to identify and potentially discriminate against low-income workers and minorities and manipulate prices.

Board member Ash Gockel noted that many insurer filings now contain an “extremely wide range of rates” for the same level of coverage, which he attributed to growing reliance on credit scores to determine pricing.

Since an individual’s credit score can be anywhere from 1,000 for a flawless credit record to zero for those with bad credit, Gockel and other board members suggested insurance companies are technically free to create hundreds of tiers when pricing the same policy for consumers.