California Senate Bill 691 failed to pass the state Assembly Insurance Committee July 9, legislation that would have banned the use of credit-based insurance scores for underwriting and rating homeowners insurance. Insurers can continue to rely on insurance scores-a valid tool that boosts consumers’ chances for coverage and lower premiums, according to the Association of California Insurance Companies.
“We are pleased that members of the Assembly Insurance Committee recognized that SB 691 is the wrong response to current market conditions in California,” said ACIC president Sam Sorich. “Insurance scores help most consumers get better rates because most people have good credit. Without the ability to use credit-based insurance scores, most policyholders would pay more for insurance.”
The ability of insurers to use this highly accurate, predictive tool must be preserved, Sorich said. Banning the use of credit would harm consumers throughout the state, said Sorich, a lead witness at the committee hearing. It would take away the ability of insurance companies to identify responsible customers who should be rewarded with lower premiums. Instead, those responsible customers would have to pay higher premiums to subsidize those who are more likely to incur a loss. Combining insurance scores with other familiar factors, such as the age of a home and the number of claims filed, helps insurers gain a clearer picture of an individual’s risk and fairly price policies for each consumer, Sorich said.
SB 691 would have prohibited insurance companies from using the credit history or the credit-based insurance score of a consumer who is applying for or renewing a homeowners insurance policy, a proposal that the Coalition for California Homeowners, of which ACIC is a member, believed was too radical. The coalition is an alliance of organizations-including minority business groups, neighborhood associations, construction, mortgage banker groups and individual insurance companies- dedicated to enacting sound public policy on the use of insurance scores.
An alternative, reasonable and balanced approach would better serve consumers and the insurance market, Sorich said. Alternative legislation proposed by the Coalition for California Homeowners would require the disclosure and notification and notification of when insurers will use credit, prohibits insurers from using credit information as the sole factor for underwriting and rating decisions, and prevents insurance scores from considering gender, address, ethnic group, religion, and marital status, among other factors.
According to a study released Tuesday by the California Chamber of Commerce, restrictive bills like SB 691 could drastically reduce the availability of homeowner’s insurance and have a devastating impact on California’s residential housing market and overall economy. The study, authored by the Rosen Consulting Group, found that a 10 percent reduction in homeowner policy availability would directly lead to a $6.1 billion decline in the state’s annual gross product, a drop of $517 million in indirect business taxes, and a loss of 10,000 jobs. The total impact would be an overall decline of $9 billion in annual gross state product-equivalent to the decline in gross state product experienced during the 1992 recession- and 49,600 job losses.
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