ACIC Opposes Credit Bill: Urges Regulation Not Elimination

June 21, 2005

The Association of California Insurance Companies (ACIC) is opposing legislation which would eliminate rather than regulate credit-based insurance scoring, according to ACIC President Sam Sorich.

The bill, SB 603 by Sen Deborah Ortiz (D-Sacramento), is scheduled to be considered by the Assembly Insurance Committee on June 29.

“SB 603 is too extreme. The bill would ignore the proven relationship between credit history and risk, prevent California consumers from qualifying for discounts and be unfair to most policyholders,” said Sorich.

He explained that there is compelling evidence from independent studies that there is a correlation between credit-based insurance scores and the likelihood of future losses by policyholders.

The latest study, completed by the Texas Department of Insurance in January 2005, confirms the correlation and notes that the practice is not unfairly discriminatory.

Sorich also pointed out that when insurers lose rating tools such as credit-based insurance scores, rates do not accurately reflect loss costs and some consumers must pay higher premiums to subsidize higher risk individuals. Simply stated, if insurers are forced to ignore a proven rating factor, the result will be pricing inequity.

There is an alternative – it is regulation. The vast majority of states regulate the use of credit information instead of prohibiting it as an underwriting and rating tool. In California, the regulation alternative is contained in AB 1454, which is pending in the Assembly.

“AB 1454 would impose, for the first time, strict regulation. This is something that has been needed for a long time. However, creating an absolute ban on the practice of using policyholders’ credit history by insurers would hurt rather than help consumers,” said Sorich.

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