Consumer advocates face setback in auto insurance fight
Consumer advocates are facing setbacks in a renewed bid to stop auto insurers in Maryland from using policy holders’ credit scores to set rates.
Advocates say proposed state legislation to eliminate credit as an auto insurance rating factor has been gutted by amendments that favor the insurance industry.
Members of the Maryland Consumer Rights Coalition say the bill was intended to make auto insurance more affordable and do away with factors not related to driving that can lead to discrimination in the underwriting process. The legislation sponsored by Delegate Melissa Wells, a Democrat who represents West Baltimore, was amended before passing the House of Delegates and is now before the Senate Finance Committee.
“Strong reform is needed to address the use of credit history, one of the most egregious non-driving-related factors, which disproportionately affects low-income drivers and working families,” said Isadora Stern, a policy associate with the coalition, while testifying Tuesday before the Senate committee.
Insurers argue that credit scores, just one of many rating factors, have been shown to effectively predict the number and cost of claims filed. During the legislative session insurance trade groups and companies have mobilized to defeat the proposed measure, attending hearings and, in the case of one large insurance firm, soliciting donations from agents in Maryland for a political action committee.
To offer competitive policies insurers use a number of rating factors and models to predict potential losses and charge accurate prices, said Matt Overturf, regional vice president for the mid-Atlantic region of the National Association of Mutual Insurance Cos.
“Through this practice, rather than a punitive one-price-fits-all approach, consumers who present lower risk pay less for their coverage,” Overturf said in testimony last month before the House Economic Matters Committee.
Under current state law, insurers can use an applicant’s credit history to determine rates on new, not existing, policies. But drivers with poor-to-moderate credit ratings can be charged a penalty of up to 40%, said Marceline White, executive director of the consumer coalition.
Consumers could find their credit damaged because of student loans or credit card debt but also because of identity theft or data errors, White said.
“It’s economic profiling, and that’s particularly true with credit scores,” she said. “Maryland drivers are paying an enormous cost because of the current law.”
Insurance industry representatives had opposed the original bill, arguing that “riskbased pricing” allows insurers to offer customers competitive rates while remaining financially stable.
Unlike other institutions that rely on credit scores to make loans or issue credit, insurers do not collect or consider an applicant’s income level, said a lobbyist for the the American Property Casualty Insurance Association.
“There is no reliable evidence that points to insurance scoring resulting in higher insurance rates for any specific class of individual,” said Nancy Egan, the insurance association’s state government relations counsel representing Maryland.
In February Erie Insurance asked agents in Maryland to contribute to ERIE-PAC, in part to defend against proposals such as those to ban or restrict credit, gender and territory rating variables, according to a company email sent to agents and provided to The Baltimore Sun by the consumer coalition.
Another email sent the last week in March thanked nearly 100 agents for making contributions and asked others to consider donating, saying: “In the waning weeks of the session, we are fighting hard against a renewed effort to ban use of credit in auto.”
A spokesman for Erie, which is based in Erie, Pennsylvania, said the company supports the industry position against banning “key insurance underwriting and rating variables.” But ERIE-PAC contributions do not target specific issues, said Matthew Cummings, the spokesman.
“We are aware of the legislative proposals currently being considered in Maryland and continue to work closely with our industry trade associations to support a legislative and regulatory environment that is balanced for insurers and consumers,” Cummings said.
The amended bill passed by the House allows policy holders with poor credit to request exceptions if specific circumstances or hardships damaged their credit. Insurers are under no obligation to grant exceptions.
Consumer advocates say that has left the bill, which they now oppose, with no meaningful help for drivers with poor credit. Separate bills proposed this session to prevent use of gender and ZIP code in setting rates failed to move forward. Similar bills in past years have been unsuccessful.
Consumer advocates have tried to reform the auto insurance market for years, with some success in states such as California, Massachusetts and Hawaii, said Doug Heller, director of insurance for the Consumer Federation of America.
But “the industry invests a lot of political capital in trying to block reform,” he said. “This is an ongoing battle for fairness around the country. It’s not a new problem.”