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Consumer Reports urges New York to ban insurers from using credit scores to price auto insurance coverage

Discriminatory practice penalizes New Yorkers with fair or poor credit with higher rates and makes coverage unaffordable for many Black and Latino drivers

ALBANY, NY — Consumer Reports and a coalition of consumer and community organizations are calling on state lawmakers today to ban insurers from using credit scores to price auto insurance coverage, a practice that disproportionately harms low income drivers and communities of color.  CR’s Chuck Bell is testifying today at an Assembly Standing Insurance Committee hearing and will highlight research showing how good drivers with fair or poor credit can pay hundreds or thousands of dollars more for basic liability coverage compared to good drivers with excellent credit.

“It is fundamentally unfair for auto insurers to penalize New Yorkers with higher premiums based on factors that have nothing to do with their driving record,” said Bell, Programs Director for Advocacy for Consumer Reports. “No one should have to pay more for auto insurance just because they have a less than stellar credit score. Insurance should be fairly priced based on someone’s driving behavior, not on socioeconomic factors that penalize low income drivers and communities of color with higher premiums.”

Auto insurance companies use both “driving” and “non-driving” ratings factors to set prices for auto insurance. Driving-related factors include information about an individual’s driving behavior, such as the number of miles driven per year; years of driving experience; and driver safety record, including violations and collisions.  Non-driving factors include data related to an individual’s socioeconomic profile, including credit scores.

Customers with excellent credit tend to get the best rates under this pricing system, while customers with good, fair or poor credit are charged higher rates.  For new customers, insurance companies may use credit scores or data to decide which new customers to accept, and how much to charge for coverage. For existing policyholders, insurers may use credit information to make decisions about whether to renew policies or raise premium rates.

During his testimony at today’s Assembly Standing Committee hearing on insurance, Bell will highlight recent research that illustrates how this practice makes auto coverage unfairly expensive for many New Yorkers:

  • According to 2020 data provided by Consumer Federation of America, consumers who have a clean driving record but have only fair credit pay a statewide average of $476 more per year for basic liability coverage than drivers who have excellent credit. Even worse, drivers with a clean driving record who have poor credit pay a whopping $2,343 more, on average, than drivers with excellent credit.
  • The impact of using credit score is even worse in many parts of the state. For example, in Buffalo zip code 14211, a driver with a clean driving record with poor credit pays $4,298 per year more than a driver with excellent credit.  Drivers in Brooklyn zip code 11213 pay a staggering $5,956 surcharge for having poor credit, just to obtain basic liability coverage.
  • According to Bankrate, the 2022 average cost of full coverage in New York state is $2,296, and a driver with poor credit would pay an extra $3,839 for a total average premium of $6,835.
  • The impact of credit score on New York’s pricing system is even greater than drunk driving. A study carried out by Consumer Reports in 2015 found that New York state consumers with clean driving records and poor credit even paid an average of $589 MORE statewide than a driver convicted of Driving While Intoxicated, if that driver had excellent credit.

For many historic and structural reasons, factoring credit scores into insurance underwriting and rating disproportionately harms people of color.  As the National Consumer Law Center has documented, multiple studies have shown that credit scores are highly correlated with race and income. They also “bake in” past patterns of discrimination, such as residential mortgage redlining, and discrimination in education and housing.

On average, people with less wealth and income have lower credit scores than people who have more wealth and income. According to the Urban Institute, 16% of New York residents had a subprime credit score below 620 in August 2021, but people of color are more likely to have a subprime score.  The institute reports that 22.6% of residents in communities where people of color are a majority have a subprime score, compared with 12.4% of residents in majority white communities.

The use of credit scores for insurance pricing has been banned as unfair and discriminatory in four states: California, Hawaii, Massachusetts and Michigan. In 2021, Washington state Insurance Commissioner Mike Kreidler banned its use for 3 years in an emergency order, but the insurance companies have challenged his ruling in court, and a final decision is still pending.

Michael McCauley, michael.mccauley@consumer.org, 415-902-9537