Jan. 2, 2003                                                         Contact:Lucas Hamilton

Morrison proposal limits use of credit scoring by insurers

      Helena - State Auditor John Morrison today announced a legislative proposal to limit the ways insurance companies can use a consumer's credit history to underwrite and rate property and casualty insurance.
      "Credit scoring has been used unfairly and Montanans are not happy about it," Morrison said. "Our proposal protects consumers from the most unfair consequences of credit scoring."
      A credit score is a number insurance companies assign consumers based on credit experience, which includes the number and types of credit cards used, the number of outstanding credit balances, the number of recent credit inquiries and the age of credit accounts. Scoring formulas are developed by a third-party vendor or by the insurer itself.
      Insurance companies have used credit information actively for the last several years, but recently have relied more heavily on it to determine a consumer's level of risk before selling or renewing auto, home or renter policies. Some companies also use credit scores to non-renew coverage regardless of whether a claim has been filed or premiums have been paid on time. Many Montanans have seen dramatic premium increases due to credit scoring.
      The bill, sponsored by Rep. Bill Wilson of Great Falls, would prohibit companies from using credit history to cancel or non-renew personal insurance policies. It also would prohibit companies from using certain aspects of a consumer's credit history including:

  • The absence of a credit history or the inability to determine a consumer's credit history;
  • The number of credit inquiries made about a consumer;
  • Collection accounts identified with medical bills;
  • The consumer's use of a particular type of credit or debit card.
      "The prohibited factors included in this bill reflect the key complaints we have heard from people across Montana," Morrison said. "We repeatedly hear from Montanans who are angry that despite no late payments or claims, their rates were increased or their policy was non-renewed based on credit."
       The bill's emphasis is on consumer protection and providing consumers with information they can use to protect themselves. Morrison wants consumers to be made aware of how their credit history can affect their insurance and what their rights are.
       Other consumer protection provisions in the bill include:
  • When a consumer is adversely treated (not given the best rate available, placed in a sub-standard company, canceled, etc.) based wholly or in part on his/her credit score, the insurance company must provide written notice of the adverse action to the consumer, including the negative credit factors that affected the credit score.
  • Consumers are entitled to a free copy of the credit report used to calculate their credit scores.
  • Consumers have the right to correct inaccurate credit information and have their credit score recalculated.
      "It is time for Montana insurance consumers to be treated fairly," Morrison said. "This legislation will ensure that arbitrary decisions are not made that impact the personal and financial well-being of Montana families."