Insurers: Md. Credit Bill Will Hike Rates

By Daniel Hays

NU Online News Service, April 10, 9:06 a.m. EST?A Maryland measure setting tough restrictions on insurer use of credit scoring will mean double-digit premium increases for consumers if it is signed into law, an insurance company organization predicted yesterday.

The National Association of Independent Insurers said that if Democratic Gov. Parris N. Glendening signs bill H.B. 521, prohibiting insurers from using credit scoring, it will make Maryland the most restrictive state in the country on insurer use of credit.

The governor's press office said he has the bill under study. It won final approval Monday night.

"With its current wording, H.B. 521 is in essence a near prohibition on the use of credit information in personal lines property-casualty insurance," said Donald Cleasby, assistant vice president and assistant general counsel for the Des Plaines, Ill.-based NAII. "This isn't just an anti-insurance industry bill, but a measure that will ultimately hurt Maryland consumers."

Both the state's House and Senate adopted a conference committee report in the last hours of the 2002 session Monday night. Although the insurance industry offered an amendment to HB 521 that prohibited insurers from using insurance scores on renewals, it was rejected, the NAII said.

If signed into law, the bill will take effect Oct. 1 and will sunset on Sept. 30, 2004. The law will completely prohibit insurers from using credit information for homeowners insurance, and for underwriting new or renewal business of private passenger auto insurance.

Credit information may be used for rating of a new private passenger auto policy, but within a "rate collar" of 40 percent, and the insurance score may not take into consideration credit history that is over five-years-old.

Other points of the bill include:

? A mandate that insurers using credit information in rating advise the applicant of that fact at the time of application, and must, on the applicant's request, provide a premium quotation that separately identifies the portion of the premium attributable to the applicant's credit history.

? A mandate that an insurer must review credit history if used in rating a new policy at least once every two years or upon the insured's request, and shall adjust the premium to reflect any improvement in credit history.

? A prohibition against insurers requiring a particular payment plan based on the insured's or applicant's credit history.

? Mandate that the Maryland Insurance Association conduct a study and report to the governor and General Assembly by January 2004 on whether use of credit data has a disparate impact on any demographic group defined by race or socioeconomic status, and on the impact of premium rates on Maryland Auto Insurance Fund policies.

Mr. Cleasby predicted that most Maryland consumers will almost definitely pay higher premiums if the bill becomes law. If the legislation had a complete prohibition on use of credit, an NAII member insurer providing private passenger auto insurance for 12,079 Maryland vehicles calculated that 60.5 percent of these policies will see an increase in their bodily injury liability premiums if HB521 becomes law, NAII said.

The group said this translates into 7,308 Maryland policyholders seeing a premium increase, and more than 2,100 seeing bodily injury liability premiums increase by over 20 percent.

Another NAII member, the group said, reported that if it is prohibited from using credit information in Maryland, more than 59 percent of its private passenger auto insurance policyholders would receive a premium increase. That amounts to 39,509 Maryland policyholders receiving an average premium increase of 14 percent.

And a third NAII member providing private passenger auto insurance in the state reported that if use of credit data is prohibited or greatly restricted, 65,000 of its standard auto insurance policyholders will see an average premium increase of 22.5 percent, and another 25,000 of its policyholders will see an average premium increase of 10 percent.

"If the use of insurance scores is outlawed or seriously restricted in Maryland, insurers will be precluded from using an important, fair, and accurate factor for writing personal auto and homeowners policies," Mr. Cleasby said. "More important, insurance rates for most consumers will increase because responsible individuals will have to pay more to cover the losses of higher-risk policyholders. We hope the governor recognizes this and vetoes the bill."

The Alliance said the measure "would do a great disservice to insurance consumers in the state by banning the use of credit scoring."

The Downers Grove, Ill.-based Alliance said its members believe that a well-balanced, broad-based study will prove insurers' claim that use of credit scores is an effective predictor of risk, and that they impact insurance consumers in an evenhanded manner.

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Insurers: Md. Credit Bill Will Hike Rates

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