Unfavorable length of credit history. Age of oldest account or revolving credit account. Unfavorable debt ratio. Say what? Under a rule the state insurance commissioner is poised...
Unfavorable length of credit history. Age of oldest account or revolving credit account. Unfavorable debt ratio.
Under a rule the state insurance commissioner is poised to adopt, insurance carriers would have to quit using ambiguous language such as that when informing consumers why an auto or homeowner policy wasn’t issued or renewed, or why a premium was increased.
“Simply telling consumers they have an ‘unfavorable number of revolving credit accounts’ does not provide them with enough information,” Insurance Commissioner Mike Kreidler said last week. “Consumers need to know what is specifically causing the problem.”
In fact, under the rule change he’s pushing, insurers will no longer be able to use the term “unfavorable” to describe any part of a consumer’s credit history. Instead, they must tell consumers why their credit histories affected their ability to get insurance or to get the lowest price.
Under a state law passed in 2002, carriers were limited in the extent to which they could use credit histories to deny coverage or to cancel or refuse to renew a policy.
The law’s restrictions on how companies may use credit history and the resulting insurance “credit scores” to calculate premiums took effect in July 2003. Such scores are numbers derived from complicated, secret formulas that also take driving records into account and often vary from carrier to carrier.
But after Kreidler’s office received more than 200 consumer inquiries and complaints about such notices, it decided the proposed rule change is necessary.
Along with requiring carriers to use plainer language when sending so-called “adverse” notices to consumers, the amended rule would make them reveal:
What item in a consumer’s credit history harmed his or her insurance score.
How the item affected the score.
What the consumer can do to improve that aspect of the score.
In addition, if a carrier uses insurance-industry research or studies to justify the effect scores have on premiums or eligibility for coverage, the insurer must file the cited documents with the commissioner’s office so they are available for public disclosure.
Karl Newman, executive director of the Washington Insurance Council, an industry-trade group, said last week the proposed rule represents an improvement over an earlier version because it is more specific.
Still, he said, complying with it could add to costs, “which will end up coming back to the customer at some point.”
More fundamentally, Newman said carriers still object to being put in the role of “credit counselors.” It’s a disservice to consumers, he maintained, “to imply that they can get accurate credit-counseling information from their insurance company.”
He also noted that in some cases carriers depend on third-party vendors to formulate the scores and therefore lack the information necessary to tell consumers how to fix their personal finances.
Beth Berendt, a deputy insurance commissioner, noted that no one is forcing carriers to use credit scoring to decide whether to insure someone or how much to charge. “[The carriers] have made a business decision and jumped in with both feet.”
As a result, she contended, consumers deserve to know how the carriers are applying scores and what they can do to improve their scores.
Berendt said there’s nothing to stop insurers from changing their contracts with third-party vendors to allow carriers to pass along useful information, or to direct vendors to send it directly to consumers.
Berendt said a public hearing on the rule Thursday is necessary under administrative rules, though it already has been the subject of extensive comment from consumers and carriers. She said it is “highly likely” that the insurance commissioner will formally adopt the rule on Dec. 27, in which case it would take effect 31 days later.
Peter Lewis: 206-464-2217 or firstname.lastname@example.org