Safeco in California to Pay Out $3M For Using Credit Scores

Safeco Insurance Co. has agreed to pay a $900,000 fine and reform its approval process for homeowners and auto insurance coverage, California Insurance Commissioner Dave Jones announced Friday.

Safeco was fined for the unapproved use of credit scores to deny homeowners coverage, failure to follow its own approved rating guidelines and other auto rating violations, according to a statement from the California Department of Insurance.

The CDI action followed a market conduct exam covering periods of 2006 and 2007. CDI found that Safeco, now a subsidiary of Liberty Mutual, was using credit scores and credit components in underwriting homeowners insurance. The exam revealed that in 26 instances homeowners were declined due to their credit rating.

The exam also revealed that in more than 64,700 instances Safeco failed to follow its own approved rating guidelines, including inconsistently applying good driver discounts and discounts for operating a four-door vehicle, according to CDI.

As a result of the findings, Safeco issued refunds for a three-year period resulting in roughly $3.1 million being refunded to California policyholders, CDI stated.

Other non-compliance violations included more than 38,000 instances where homeowners were not provided with the California Residential Property Bill of Rights and general rating violations where Safeco was using an unapproved rating model, according to CDI.

“This case is a prime example of why market conduct exams are an important tool in insurance regulation,” Jones said in the statement. “When we find that insurers are not complying with the law, we are able to take appropriate action and protect consumers.”