Commerce Commissioner Jim Bernstein has released information that shows Minnesota consumers are paying too much for insurance policies sold as part of a credit transaction. The data also shows that more money was paid in commissions than was paid to credit insurance customers in the form of benefits.
Of the $94 million in premiums paid for credit insurance (life, disability and unemployment coverage) in Minnesota in 2000, $33 million was paid in commissions and $32 million went for customer benefits.
Credit insurance companies pay commissions to retailers and financial institutions.
“The only outcry against reforming credit insurance in Minnesota is coming from those that sell it,” said Commissioner Bernstein. “Credit insurance is simply a cash cow for credit insurance companies, retailers and lenders. It is the only insurance product that pays the seller more than the customer.”
In 2000, 34 percent of credit insurance premiums have gone to Minnesota customers in the form of benefits. Bernstein favors a minimum 55 percent ratio, similar to other life and disability insurance products. To achieve this, credit insurance companies would need to lower rates charged by approximately 38 percent. A bill pending in the Minnesota legislature would require rates to conform to these standards.