Hatch: Keep credit scores out of insurance cost calculation

12/29/2005

A proposal to ban the use of credit scores in setting the price of auto and homeowners insurance was outlined Thursday by Attorney General Mike Hatch and DFL legislators.

Dane Smith, Star Tribune
Last update: December 29, 2005 – 4:57 PM

A proposal to ban the use of credit scores in setting the price of auto and homeowners insurance was outlined Thursday by Attorney General Mike Hatch and DFL legislators.

Hatch, joined by two Twin Cities men who said they were charged higher prices because they don’t use credit and thus had low credit ratings, said there is little or no proven link between credit ratings and greater risk of having accidents or filing claims.

Many people have poor credit ratings because medical emergencies have forced them to file bankruptcy, Hatch said, “and there is little correlation between a medical emergency and the likelihood of having an accident.”

A spokesman for the Insurance Federation of Minnesota, Mark E. Kulda, flatly contradicted Hatch’s claims.

“Credit scores are actually more accurate than traditional criteria (such as driving records) for determining risk,” Kulda said. Recent developments in traffic courts have allowed more and more drivers to hide their citations, Kulda said.

A ban would result in a more unfair system for consumers who have been able to reduce their premiums because of good credit scores, Kulda argued.

But Edward Obeda, a Roseville retiree, said the current system is unfair to people like him who are debt-free, pay all their bills on time, and have low credit scores.

“I guess I’m kind of a risk because I was paying all my bills.”

Hatch said the use of credit scoring is a relatively new procedure for insurance companies. Until 1998, they based their price on risk factors such as driving records, age of the insured, and the value of the vehicle.