ACIC Opposes Credit-Ban Bill

April 18, 2005

The Association of California Insurance Companies (ACIC) is opposed to legislation that would restrict efforts to make insurance available and force insurers to charge rates that do not reflect the risk of loss, announced ACIC President Sam Sorich.

The bill, SB 603 by Sen. Deborah Ortiz (D-Sacramento), would prohibit insurance companies from using credit-based insurance scores in underwriting or rating homeowners and automobile insurance policies. The bill is scheduled to be heard April 20 by the Senate Banking, Finance and Insurance Committee.

“Study after study confirms that a person’s credit history is a valid indicator of whether he or she will have an insurance claim. Even more compelling is the fact that insurers use this tool because it works. It would make no sense for them to base rates on information that fails to predict the likelihood of loss,” said Sorich.

“SB 603 would force insurance companies to ignore credit history as an underwriting tool and impose unfair rates on their customers,” he added.

Rather than prohibit it, Sorich said ACIC is urging the Legislature to follow the lead of other states which have enacted strong, effective regulation of insurers’ use of credit.

“If credit-based insurance scoring is strictly prohibited and rates inaccurately reflect anticipated insured losses, most customers would end up paying more for their coverage in order to subsidize higher risk individuals who file a disproportionate number of claims,” said Sorich.

He noted that insurers’ consideration of credit-based insurance scores gives consumers an opportunity to qualify for lower premiums and discounts. “AB 603 would block this opportunity. At the same time, the use of insurance scores by insurance companies gives people with favorable scores a better chance to find insurance and often at prices that save them money.”

He added that insurance scores only consider a person’s credit experience and not race, income, address, nationality, marital status or age.

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