Oregon voters to decide on credit scoring for insurance

Insurance companies can use a person’s gender and age to determine what they pay for insurance. Oregon voters will decide in November if insurers should be able to use a person’s financial history too.

In 2003, the Oregon Legislature prohibited insurance companies from using the credit information of existing policyholders to decide whether to raise rates or drop a policy. Ballot Measure 42 would take the restrictions further.

If passed, it would ban insurance companies from using the credit history of new customers to set rates or premiums.

Insurance companies have long used a person’s credit history in their underwriting process. Companies found that a person’s credit history is a good predictor of insurance claims. Although it cannot be done in every state, about 90 percent of the market uses credit scoring, according to the Insurance Information Institute.

The practice has come under fire in recent years.

Critics of credit scoring say it targets lower-income people and minorities who tend to have poorer credit history. And many critics say it is done without a clear understanding of the customers affected. At least 18 states have considered clamping down on the practice in 2006.

“I heard this was going on … and I couldn’t believe it at first because it seemed so illogical,” said Bill Sizemore, an anti-tax activist and prolific filer of ballot measures, who launched Measure 42. “It’s a way to gouge the people least likely to fight back.”

He said current Oregon law discourages competition. Consumers may be protected from credit scoring at their current company, but would be subject to it at a new one. Additionally, he said credit information can be inaccurate, making it a weak tool.

Insurance companies and some business groups are vehemently opposing Measure 42, saying the new regulations will raise rates for most people.

“It has many unintended consequences,” said Pat McCormick, spokesman for Oregonians Against Insurance Rate Increases, the group fighting the measure. “There are about 60 percent of Oregonians whose rates are going to go up. Those with good credit histories are going to subsidize those with bad credit histories.”

Additionally, the companies say credit scoring is done without information about income, race or where a customer lives — not making it possible to target certain minority groups.

The anti-42 group plans to launch television ads to get their word out. Sizemore said there are no television ads planned for the campaign yet, but some may be launched with the support of various outside groups.

If approved, the measure would take effect 30 days after it is approved by the state.

Other states will be watching the outcome of the election because if it passes, it would affect both personal and commercial lines, according to Nicole Mahrt, a representative with the American Insurance Association in Sacramento. Furthermore, if Measure 42 passes, it could be replicated in other areas of the country, she said.

Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Additional reporting by Patricia-Anne Tom.

Topics Oregon