Sept. 27, 2001
Contact: Lucas Hamilton
Morrison alerts consumers to insurance companies' use of credit history Offers information on how to protect yourself
State Auditor John Morrison has issued an advisory memorandum to Montana's homeowner and automobile insurers requiring those using credit history for underwriting or rating purposes to notify consumers when that information adversely affects their ability to obtain or renew insurance or causes them to pay higher premiums.
"We've had complaints about premium rates increasing as much as 60 percent from consumers who for one reason or another, had a poor credit score," said Morrison, Montana's Insurance Commissioner. "We don't like the fact that insurance companies can use credit history and it's particularly disturbing because most consumers don't even know it's being done. We've issued this advisory to let companies know that while they legally can use credit, they have a duty to tell consumers they are doing that and why."
Violations of the law are punishable by a maximum $25,000 fine per violation.
Morrison's office proposed legislation to limit the use of credit scoring in underwriting and rating to the 2001 Legislature, but the bill was tabled in the House Business and Labor Committee. Morrison said he would try to pass similar legislation in 2003.
Meantime, the State Auditor's Office will enforce the current law and educate consumers on their rights.
"Consumers have the right to know how their credit history is used," Morrison said. "It's important for them to know if it is adversely affecting them so they can shop around for better rates and fix errors that may exist in their credit reports.
The advisory requires insurers to:
Send written notice to individuals if they deny, non-renew, limit the scope or amount of coverage, or charge more for homeowners or automobile insurance on the basis of credit. They also must let consumers know they can request a copy of their credit report.
Advise consumers of the specific reasons for any adverse underwriting decisions, including specific factors that contributed to a poor credit score.
Tell consumers the reasons why they use credit history and how often the company reviews credit history or credit scores.
Disclose that the company has made a voluntary decision to use credit information and Montana law does not require it.
Consumers with questions or concerns regarding an insurance policy, a company or an agent may call the State Auditor's Office at 1-800-332-6148 or visit its Web site at www.discoveringmontana.com.
TIPS FOR THE INSURANCE CONSUMER
WHAT YOU SHOULD KNOW ABOUT THE USE OF YOUR CREDIT HISTORY
By State Auditor John Morrison
- Most insurance companies that sell homeowners and auto insurance use your credit history to determine if you are eligible for insurance coverage and the amount of premium you will pay.
- Just because you think you have good credit, doesn't mean the insurance company agrees. Insurance companies may use credit differently from banks. Insurance companies typically create a "credit score" based on information obtained from your credit report. These credit scores may be based on factors that normally wouldn't adversely affect your credit, such as the number of times your credit has been checked or the type of credit cards you use.
- You have the right to know up front how insurance companies use credit. If you aren't notified that your credit history is being used to determine your eligibility or the amount of premium you pay, call your company and ask if credit is being used. If it is being used, call the Insurance Department at 1-800-332-6148 and let us know that the company is not complying with the notification laws.
- Insurance companies are required by law to notify consumers in writing when an adverse action has been taken against the consumer that is wholly or partially based upon the consumer's credit. For example, if your auto insurer upon renewal determines that you have an unfavorable credit score and decides to raise your rates by 15 percent, the notification of the rate increase must indicate that the reason for the increase was based partially or totally on your credit.
- If you have been adversely treated by an insurance company (by paying higher rates, being non-renewed, denied coverage, or placed into a sub-standard company) there are two things you need to do to get more specific information. First, request a free copy of your credit report. Second, ask in writing for the specific reasons for the action. By doing this you can see the kinds of factors that may be causing you to pay more for your insurance, and note any mistakes on the credit report.
- If there are mistakes on your credit report, ask the insurance company to re-calculate your "credit score" based on accurate information. Having the credit score re-calculated might result in a significant change in your rate.
- Shop around. Some insurance companies use credit to a greater degree than others, and credit scores can vary greatly from one company to the next. You might want to choose a company that bases its rates more heavily upon such factors as driving record and claims history. Specifically, you should find out how a particular company uses your credit and how often the company checks your credit report.
- Call the insurance company to complain if you aren't satisfied with the company's practices. Agents aren't always given the information about your credit history and are often sympathetic with the consumer, but unable to change the company's policies. Agents can give you contact information for the companies they represent, but are not responsible for the insurance company's rating decisions.
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