Credit Score Ban Gets Wisconsin Senate Okay

The Wisconsin Senate dismayed insurance interests yesterday by passing a bill that would ban the use of customer credit records to set an individual's auto or home insurance rates. The bill now goes to the state Assembly.

Insurance groups said they would continue to battle the measure. The 17-to-15 vote for approval in the Senate was primarily on party lines, with 16 Democrats and one Republican voting for the measure, and 14 Republicans and one Democrats voting against.

In the Assembly, Republicans hold a majority. Greg LaCost, assistant vice president and regional manager for Property Casualty Insurers Association of America, noted the narrow margin for the bill's passage in the Senate and said, “we are confident that the House will reject the notion of raising rates for the majority of consumers.”

The action in Wisconsin follows a vote this week by the Colorado legislature, which defeated a proposal to ban credit scoring. At present, only four states have some form of ban on the practice–California, Hawai, Massachusetts and Maryland.

Delaware passed a restriction last year on the use of credit scores for renewal business, unless requested by the consumer. Most other states allow credit scoring, with many following a model created by the National Conference of Insurance Legislators.

Both the American Insurance Association and National Association of Mutual Insurance Companies testified against the Senate bill (259) when it was in committee.

“Banning a proven risk-classification tool such as credit will only serve to harm the Wisconsin insurance market, where consumers pay some of the lowest auto and property insurance premiums in the nation,” said John Birkinbine, AIA assistant vice president for the Midwest Region.

After the vote, Robert Detlefsen, NAMIC's vice president of public policy, in a statement called the bill “a sure path to higher rates, as consumers who handle their finances responsibly would have to subsidize rates for the minority of customers with poor credit.”

“Supporters of this legislation have clearly ignored the multitude of studies showing that credit-based insurance scoring is an objective and actuarially valid tool that enables insurers to better predict the likelihood of future claims and the cost of those claims,” he added.

Mr. Detlefsen said he would continue fighting the legislation and lobby the Assembly vigorously to defeat it.

Mr. Birkinbine of AIA said that “as we testified to both the Senate and Assembly committees, credit information helps insurers more accurately assess and price for an individual's risk, thereby reducing subsidization of bad risks by good ones, making the system fairer for everyone.”

Studies have proven that consumers with better credit scores generally file fewer claims and have lower insurance losses, industry groups say, arguing that credit information is completely objective and “blind” to legally prohibited factors such as race, religion, marital status and nationality.

On top of state and federal consumer protection laws, insurance regulators are required to ensure that consumers are not charged rates that are “excessive, inadequate, or unfairly discriminatory.”

The property-casualty industry in Wisconsin employed more than 18,000, and paid more than $144.8 million in premium taxes in 2005.

Additionally, insurers are a major source of capital for governmental bodies in the state. According to an analysis of A.M. Best data, insurers held $6.9 billion in Wisconsin municipal bonds in 2005–approximately 20 percent of the outstanding state and local government debt in the state.