Members of the Maryland House Economic Matters Committee considered a bill Tuesday that maintains Maryland’s current restrictions on insurance carriers’ use of credit in rating policies.
The Property Casualty Insurers Association of America (PCI) supplied testimony at the hearing in support of a bill that would maintain the status quo on the state’s rules related to the use of credit-based insurance scores.
According to the PCI, House Bill 504 repeals a portion of the insurance scoring law that passed in 2002, reportedly one of the most restrictive laws in the country regarding an insurer’s use of credit information in underwriting and rating for homeowners and auto insurance. State law prohibits homeowners insurers from using credit information in underwriting or rating. The law also prohibits private passenger automobile insurers from using credit information for underwriting, but allows such information in rating new policies within 40 percent rate collars—either a surcharge or discount of up to 40 percent. The language of the rate collars sunsets Oct. 1, but the legislation extends the rate collars indefinitely.
“Two years ago, lawmakers in this state passed the most restrictive credit law in the country, a measure that was hotly contested and debated,” said Don Cleasby, PCI assistant vice president, counsel and regional manager. “The industry objected to the measure, but has dealt with the new law and made the adjustments needed to comply.
“But it has only been 15 months since the law took effect, and it’s premature to make even further system adjustments and more expense — particularly when the issue continues to be under fire and more evidence exists since the law was passed two years ago regarding the strong correlation between an individual’s credit history and his or her risk of future insurance losses.”
Numerous studies have reportedly documented the high degree of correlation between insurance scores and future losses. The Texas State Legislature commissioned a study that found a “significant relationship” between an insurance score on a policy and incurred losses for that policy. The study found that “in general, lower credit scores were associated with higher incurred losses.”
Reportedly the most comprehensive study to date, conducted last year by EPIC Actuaries, studied 2.7 million auto policies, and after adjusting for other variables, showed that individuals with the lowest insurance scores were found to incur 33 percent higher losses than average, while those with the highest scores incurred 19 percent lower losses than average.
A similar bill has been introduced in the Senate as SB 101, which is scheduled for a hearing Feb. 17 before the Senate Finance Committee.