Legislation sponsored by the Association of California Insurance Companies (ACIC) to impose strong regulation of the use of credit information by homeowners insurers passed its first committee test today.
The bill, AB 1454 by Assemblyman Ron Calderon (D-Montebello), was approved by the Assembly Insurance Committee on a 6-0 vote. The measure will be considered next by the Appropriations Committee, according to ACIC President Sam Sorich.
“There is no serious dispute over the correlation between credit-based insurance scores and the risk of homeowners insurance losses,” said Sorich. “However, concerns have been expressed about the use of insurance scores as an underwriting and rating tool.”
Sorich – who testified in committee for the legislation — noted that AB 1454 addresses those concerns by imposing strong restrictions on how homeowners insurers use credit information.
For instance, insurers would be limited to using credit scores as just one factor in evaluating the likelihood of loss. Insurers also could not consider credit at all when contemplating cancellation or non-renewal of policies. At the same time, insurers could not penalize insurance applicants with little or no credit history. And, exceptions would have to be made to applicants with poor credit ratings caused by such things as divorce, illness or job loss.
AB 1454 at the same time would require insurance companies to file their plans to use credit scoring with the insurance commissioner for review.
“By allowing the use of credit scoring, under strict controls, insurers will feel more confident in their underwriting practices and this, in turn, should improve the availability of homeowners insurance in California,” said Sorich.
For consumers, the legislation would not only make insurance more available, it would also help insurers establish fairer rates. Insurers, by using credit information, would be able to make certain that rates reflect the risk of loss so consumers would not be required to pay more than they should for homeowners insurance. Simply stated, homeowners with a lower risk of loss would be paying less,” said Sorich.
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