MA Bans the Use of Credit Scores in Insurance Underwriting

Increasing your credit scoreOn November 22, 2011, Governor Deval Patrick signed into law H-3795, a bill which makes it unlawful to use credit scores in underwriting and rating private passenger motor vehicle insurance.

The state banned insurance-based scoring and other socioeconomic factors several years ago as it looked to implement a “managed competition” auto-insurance market, replacing the existing system at the time in which the state set rates.

The new law, however, makes it illegal to use credit scores in underwriting auto insurance. Other bans, such as using education or occupation, remain administrative regulations.

This legislation was MAIA’s top legislative priority for the 2011-2012 legislative session. Currently, the use of credit in the underwriting and rating of private passenger auto insurance is prohibited by regulation only. Regulations can be amended or repealed by the sole action of the regulator, in this case the Insurance Commissioner. With the credit prohibition now part of Massachusetts law, only the Legislature and the Governor can amend or repeal the prohibition.

MAIA filed the credit scoring legislation for the 2011-2012 session with 66 legislative sponsors, more than one-third of the entire Legislature.

Throughout the year, hundreds of Independent Insurance Agents contacted their Legislators encouraging support of the legislation. The MAIA was also campaigning to get a question on the ballot next year to ban credit scoring. But with the signing of the law, the association has dropped the question.

Many within the insurance industry, including the American Insurance Association and the Property Casualty Insurers Association of America, have supported the use of credit scoring as a valuable tool.

“AIA supports the use of underwriting and rating tools that allow insurers to make informed decisions regarding risk,” says Willem O. Rijksen, spokesman for the AIA. “The vast majority of policyholders benefit from lower premiums as a result of credit-based insurance scoring. AIA opposed this legislation because it will prohibit the use of this beneficial tool and result in a disadvantage for Massachusetts drivers.”

The MAIA however, felt differently. 

Frank Mancini, president and chief executive of the Massachusetts Association of Insurance Agents, says the MAIA held a longstanding negative opinion about the use of the underwriting tool.

“It shouldn’t be used,” he says. “Study after study has shown that there can be so many mistakes in credit reports, and it’s incredibly difficult to fix them.”