Consumer Group Calls on Lawmakers to Ban Practice Throughout Insurance Industry

Santa Monica, CA — Allstate Insurance Company will scrap its use of consumer credit scores in homeowners’ insurance underwriting, according to an announcement by Insurance Commissioner Garamendi today. The Foundation for Taxpayer and Consumer Rights (FTCR), which had been monitoring the Commissioner’s action against Allstate, says that the insurance industry practice of deciding whether to issue a policy to someone and on what terms based on their credit rating is unfairly discriminatory. FTCR is sponsoring SB 691 (Escutia) which would ban the use of credit scoring by homeowner insurance companies altogether.

“Commissioner Garamendi has protected Allstate customers from the unfair practice of using credit history against insurance consumers, and now the Legislature and the Governor should protect all California consumers by enacting SB 691,” said Douglas Heller, consumer advocate with FTCR.”

SB 691, which has passed the Senate, would ensure that California provides the nation’s strongest insurance consumer protections against the unfair practice of credit scoring insurance policyholders. California law, under Proposition 103 rules, already bars credit scoring of auto insurance customers. Insurance customers around the country have been targeted for less-than-perfect credit histories in recent years, as the practice has become increasingly common in the insurance context.

Depending on the company, a poor credit score may result in a consumer paying more for a policy, being required to pay the entire premium up front or being denied insurance altogether. FTCR contends that credit scores are often a reflection of income, as consumers with lower incomes often have less access to the financial tools that improve credit scores, but credit scores do not have any meaningful relationship to actual insurance risk. The group notes that in some instances savvy shoppers who open up store credit cards in order to get discounts will be dinged on their credit score.

“Whether or not a consumer opens up a Macy’s card or makes a late payment on their mortgage has nothing to do with whether or not that person will have a problem that leads to an insurance claim. Insurance companies should not be allowed to use individuals’ personal financial history in setting a policyholder’s insurance premium,” said Heller.

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