Consumer Groups Vow to Continue Fight to End Homeowner Insurers’ Arbitrary, Inconsistent and Unfair Use of Credit History

Sacramento, CA — Legislation that would prohibit insurance companies from using a consumer’s credit history to deny them homeowner’s insurance coverage or to set rates was killed today by the Assembly Insurance Committee when 2/3 of the committee members voted against, or failed to vote on, SB 691 (Escutia — Whittier). The Foundation for Taxpayer and Consumer Rights (FTCR), sponsors of SB 691, vowed to continue the fight against insurers’ use of arbitrary and inconsistent insurance credit scores against California consumers.

"Legislation to institute landmark consumer protections has been abandoned this year each time California legislators shirk their responsibility to legislate and refuse to vote," said Douglas Heller, senior consumer advocate with FTCR. "Representatives who won’t vote on legislation don’t represent the public interest — they’re representing themselves and their campaign contributors."

In testimony today, FTCR noted that Allstate Insurance, according to public filings in Virginia, gives the highest score to customers with exactly four credit cards and rates negatively policyholders who have paid down their debt and cut up all their cards. The group also pointed to a series of seemingly unrelated reasons that ChoicePoint marks homeowners down on their insurance credit score. (ChoicePoint is one of the nation’s primary providers of credit scores to the insurance industry.) ChoicePoint dings homeowners who have credit accounts with tire dealers and auto parts stores, for unexplained reasons. The company urges people to use standard credit cards instead. But ChoicePoint also reduces the score of consumers who open credit card accounts. Consumer groups argue that these factors have no meaningful relationship to the real risk a consumer poses to an insurance company and, therefore, the use of such factors should be banned outright.

"When it comes to paying for insurance, homeowners should be graded on things that are related to the risk they pose, such as if the home is in a fire zone or if their plumbing is in good condition, not whether they have the right number of credit cards," said Heller. "With the support of the Insurance Commissioner, the fight to completely ban the arbitrary and discriminatory use of credit scores by homeowner insurance companies will continue."

Under the voter-approved Proposition 103 auto insurers in California cannot use credit history and Commissioner Garamendi has disallowed the use of credit scoring in the homeowner insurance market. Some insurance companies, however, contend that California law allows insurers to use credit scoring, which is why SB 691 was proposed to clarify California’s prohibition.

Insurance companies argue that there is a statistical correlation between insurance credit scores and homeowner insurance losses. FTCR and other consumer groups dispute the correlation, but argue that even if there were a correlation, it would not justify the use of credit scores for setting insurance rates.

"Just because someone has a low credit score, it doesn’t mean a windstorm will blow shingles off their roof and force them to file a claim," said Heller. "People have credit trouble for all sorts of reasons, including medical catastrophe, divorce, job loss, and identity theft, and that should have no bearing on their insurance premium."

On the 19 member committee, 7 members voted yes (Ed Chavez, Lou Correa, Dario Frommer, Paul Koretz, Sally Lieber, Juan Vargas, and Mark Ridley-Thomas), 6 members did not vote (Russ Bogh, Ron Calderon, Manny Diaz, John Dutra, Jerome Horton and George Nakano), and 6 voted no (John Benoit, John Campbell, Robert Dutton, Ken Maddox, Dennis Mountjoy and Keith Richman)

FTCR also noted that one company is now selling information about consumers’ check writing habits to insurers as a way to refine their customers’ credit score information. Consumer advocates said that "insurance companies’ use of all this personal financial information is another unwanted and unwarranted invasion of consumer privacy."