Critics: Don't let insurers use credit scores

The state attorney general, consumer groups, and several insurance companies yesterday urged Insurance Commissioner Nonnie S. Burnes to prohibit automobile insurers from using a driver's credit history to directly or indirectly set what he or she pays for coverage.

In Burnes's proposed regulations for the start of auto insurance competition next year, she included a one-year prohibition on the use of credit history in setting rates. Burnes has said the year will give her time to study the issue more closely. She did allow companies to consider credit history for underwriting, or when deciding whether to insure a driver.

The attorney general, the consumer groups, and several insurers all urged Burnes to prohibit the use of credit entirely because it discriminates against low-income people and minorities.

"It's inherently unfair and arbitrary," said Birny Birnbaum, executive director of the Center for Economic Justice in Austin, Texas. He said a person's credit history has less to do with paying bills on time, which insurers say is a good indicator of a driver's responsibility, and more to do with race and income.

The groups also said a company could exploit the proposed rules to indirectly set rates using a person's credit history. They said companies could set up different subsidiaries or tiers within the same company, all charging different base rates. The companies could then steer customers with poor credit to those companies charging the higher base rate and people with good credit to those charging less.

"We think that effectively works out to using credit for rating," said Glenn Kaplan, an assistant attorney general.

After the hearing, Burnes was noncommittal about what changes she plans to make in the proposed regulations. She plans to issue the final regulations next month and allow companies to start setting their own premiums, subject to her approval, A pril 1.

Burnes's attitude toward the use of credit history appears to have shifted over the last few weeks at a series of public forums.

Initially, she expressed deep skepticism about using credit history in determining auto insurance premiums. But recently she has sounded more positive. She even suggested at a recent legislative hearing that a study produced for companies pushing for auto insurance competition indicated nearly everyone in Boston would pay lower premiums if credit history were considered.

Yesterday, she said the study indicated that, on average, drivers would pay less if their credit scores were considered; the industry group said the study indicated only that the range of premiums offered would have a lower starting point if credit history is considered.

During an exchange with Birnbaum, Burnes said she believed state law required her to allow companies to use credit history in deciding whether to insure someone. Birnbaum responded: "That's clearly a bummer."

Burnes told reporters it could be beneficial for companies to set up multiple auto insurance subsidiaries or establish different tiers within a company. She said a company could then group similar drivers together, such as households with all drivers over 25 or households including drivers under 25. It was unclear why such groupings would be beneficial. The proposed regulations don't address the creation of multiple subsidiaries or tiers within a company.

Burnes got into testy exchanges with two officials from consumer groups who sharply criticized her proposed regulations. Stephen D'Amato, a consultant to the Center for Insurance Research in Cambridge, urged her to scrap her regulations and start over, "this time taking seriously the suggestions of consumer groups and the many other critics of the pro-industry approach embodied in the proposed regulations."

Deirdre Cummings, legislative director at the Massachusetts Public Interest Research Group, urged Burnes to estimate how far rates would have fallen next year without moving to competition so consumers in 2008 would have a benchmark for deciding whether competition had been beneficial to them. Both D'Amato and Cummings estimated the average statewide premium would have fallen 10 percent next year if state regulators had continued to set the rates. Burnes indicated she was not interested in establishing such a benchmark.

Burnes said the Division of Insurance plans to set up a website where consumers could compare the average rates being offered by insurers next year, but Cummings said consumers should be able to one-stop shop for actual rates.

Bruce Mohl can be reached at mohl@globe.com.