Massachusetts Insurance-Scoring Ban Signed into Law

Massachusetts Gov. Deval Patrick has signed into law a bill barring auto insurers from considering consumer credit histories when setting premiums, superseding an existing administrative ban on so-called “insurance scoring.”

The new legislation caps months of maneuvering by the Massachusetts Association of Insurance Agents (MAIA), which has claimed administrative prohibitions on the practice did not go far enough. MAIA last month withdrew a ballot initiative seeking the ban in favor of a bill, revised at the request of state legislative leaders, that dropped statutory restrictions on insurers’ use of policyholders’ work and education histories when setting rates.

“Given the economic conditions, not only in Massachusetts but around the country, I think it was a victory for consumers,” MAIA spokesman Dan Foley said of the new law in a telephone interview. “We think it’s simply bad public policy to allow … companies to rely on (credit history) information when it has nothing to do with a person’s ability to drive.”

Credit cardsInsurance scoring has been a hot-button issue this year in the Bay State, one of only three nationwide with regulatory bans on auto insurer use of credit histories for rating purposes.

Insurers support the use of a person’s credit history as a tool to help set rates, claiming statistics show that credit status is a reliable predictor of risk that allows coverage providers to set rates with greater accuracy.

MAIA and other critics, however, say the practice unfairly punishes low-income consumers by basing rates on factors that have nothing to do with driving. MAIA officials maintain that consumers who are comparing auto insurance quotes in Massachusetts should not be charged more for having a few dings in their financial past, and monthly premiums should be based as much as possible on driving records and years of experience behind the wheel.

The new law will protect consumers against “an unfair, unreliable and discriminatory rate-setting practice,” Foley said. “People just don’t believe their financial woes or a mistake on their credit report should affect their ability to buy affordable auto insurance.”

A Federal Trade Commission (FTC) study found that credit scores do appear to correlate closely with the rate and size of claims filed, but exactly why is unclear.

MAIA officials have been criticized by organizations including the Property Casualty Insurers Association of America (PCI), for their dual efforts to outlaw the use of credit, work and education histories in setting premiums.

After hearings before a joint House and Senate committee last month, MAIA ended its ballot drive and focused on getting a compromise bill passed. The legislation prohibits the use of credit histories but not education and job histories, which will still be prohibited only by administrative regulations.

About Gregor McGavin
Gregor McGavin is an award-winning journalist who has reported across the country for such publications as The Associated Press, the Arizona Republic, the Pittsburgh Tribune-Review and the Press-Enterprise.

No comments yet.

Comment on this article