Should credit shape pricing? Virginia bills say credit shouldn't be factor in auto insurance

AUTO INSURANCE

After a second rejection, an extremely rare third look at legislation is so far keeping alive a bill aimed at reining in a controversial auto insurance practice.

The legislation, Senate Bill 693, says insurance companies can't refuse to cover drivers or charge different premiums for coverage solely because of an individual's credit.

The Senate bill sailed through that body with a 36-1 vote, but the House of Delegates version, House Bill 1228, was tabled early in the session.

"I think mine came on a bad day in the calendar," said Del. Israel O'Quinn, R-Washington County, the House bill's sponsor, after the House Labor and Commerce Committee changed its mind last week about tabling the Senate bill.

His was among 35 bills on the House committee's agenda on the day it was tabled and was the only one to meet that fate.

After another look at the Senate bill and a rare vote calling it back from having been tabled, the committee's insurance panel then decided on a 6-1 vote to move the Senate bill on.

"Whether someone goes through divorce, has a bankruptcy, someone has shared family debts, that does not affect whether they're a great driver or not," said state Sen. Emily Jordan, R-Isle of Wight, who sponsored the Senate bill.

"I think their driving record does, so what this bill does is make sure that this is not the sole basis for what I personally feel like is unfair discrimination for someone that may have experienced a hardship," she told the House panel.

Insurers have used credit information when setting premiums since the 1990s, giving their own - often closely guarded - weighting to various elements in credit reports to come up with their pricing formulas, the State Corporation Commission's Bureau of Insurance says.

The companies say they've found a connection between drivers' credit standing and the number of claims they file.

Virginia had previously banned using credit reports for renewal of auto or homeowner insurance until 2003. At that time, the General Assembly added language to insurance law formally allowing the use of credit reports in setting premium rates, subject to several conditions, including a requirement to regularly check for updates to credit reports and barring the use of information in a credit report that a consumer has disputed.

That bill passed both the House and the Senate unanimously.

A survey by the Consumer Federation of America found that drivers with good driving records but only fair credit ratings paid, on average, 49% more for coverage than good drivers with excellent credit.

Good drivers with poor credit records paid 115% more, the consumer group found.

The federation's insurance director, Doug Heller, said the bill might not make that big a difference, however.

"The insurance industry has promoted bills that use the word 'solely' and then continue to use drivers' credit history as they always have, because it is not the sole factor," Heller said.

"As long as insurers use other factors - like annual miles or your marital status or your type of vehicle - they can also use credit score," he said.

Four states - California, Hawaii, Massachusetts and Michigan - say insurers can't use credit scores when deciding to issue or renew an auto insurance policy or when setting rates. Michigan says the companies can consider credit scores when offering installment payment plans.

Maryland says auto insurers can use credit history when setting a rate on a new policy, but they can't use credit scores to deny coverage, cancel a policy or increase premiums for a renewal.

Utah says that although insurance companies can use your credit information when first issuing an auto policy and setting a rate, it can't be the only factor used. In addition, after 60 days of coverage, an insurer can't use credit information to cancel or refuse to renew a policy or to decline coverage for a new vehicle.

Dave Ress (804) 649-6948dress@timesdispatch.com