N.H. Accepts Insurers Use of Credit to Price Auto Insurance

July 24, 2007

Most insurance companies doing business in New Hampshire base their customers’ insurance rates partly on their car loans, credit card balances and other debt.

Five years ago, the state Insurance Department adopted rules for insurance companies to follow in using credit-related factors to set rates. The insurance score is based on statistics showing a correlation between credit and insurance claims.

Robert Nash, president of Independent Insurance Agents & Brokers of New Hampshire, said most companies use the scoring because studies show credit is a reasonable indication of responsibility.

David Withers, a state actuary, reviews the models being used to be sure they are fair.

“Insurance pricing does allow fair discrimination,” he said. “If statistics show that you can divide a population in a certain way, even though it might appear to be normally discriminatory, it’s fairly discriminatory because the predicted losses line up with the pricing.”

For example, insurance laws allow different rates according to age, he said.

Credit-based models work the same way, Withers said. The models show who has a higher likelihood of having accidents.

Just as those with poor credit pay higher rates, those with good credit pay lower premiums, he said.

The scoring models are considered confidential, which can frustrate consumers notified of a negative change in rates.

Withers said the department is in the process of rewriting its rules and will be discussing how to make insurance companies tell consumers what they need to do to get a better price.

Nash said one way is for consumers to shop around since different companies use different scoring models. He said consumers still unhappy with their rates should notify the state.

“We think credit scoring is certainly a legitimate rating factor, but if it’s not done properly and utilized properly, then the insured has every right to complain,” he said.

State Rep. William Hatch, D-Gorham, tried unsuccessfully to get the state to ban the practice.

“Under the insurance company’s reasoning … things that damage vehicles, such as hailstorms or whatever, can really distinguish between property that somebody with a good credit score has or somebody who doesn’t. That makes no sense,” he said.

Rep. John Hunt notes that lawmakers did prohibit insurers from basing rates solely on credit-based scores.

Hunt said he accepts the correlation between credit history and insurance loss.

“If you’re maxing out your credit card, I think you’re a higher risk of torching your house trying to get an insurance claim,” said Hunt, R-Rindge.


Information from: New Hampshire Union Leader,

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