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CU Urges California Lawmakers to Ban Use of Credit Histories for Setting Homeowners Insurance Rates

Monday, June 30, 2003


Assembly Insurance Committee Considering SB 691 on July 9

SACRAMENTO, CA – Insurance companies should not be allowed to use customers’ credit scores and histories to set homeowner insurance rates, according to Consumers Union, the nonprofit publisher of Consumers Reports. Legislation to ban the practice has been approved by the California Senate and will face an important test next week in the California Assembly. SB 691, introduced by Senator Martha Escutia, will be considered by the Assembly Insurance Committee on July 9.
“We do not believe that a consumer’s credit history has anything to do with how likely they are to file a claim under their homeowners policy and therefore should have nothing to do with the premiums they pay or whether they’re offered coverage at all,” said Norma Garcia, Senior Attorney with Consumers Union’s West Coast Regional Office. “Consumers should not be penalized with higher insurance premiums just because they missed a payment on their charge card or have a less than perfect credit history.”
SB 691 prohibits insurers from using a consumer’s credit history to rate, underwrite, cancel or refuse to renew a homeowners policy. It also prohibits insurers from requiring a particular payment plan for homeowners insurance based on an individual’s credit history. In its letter to lawmakers urging support for SB 691, Consumers Union notes that credit scores are not reliable or consistent and can vary significantly depending upon the reporting agency providing the information. Credit scores also can reflect an incomplete credit history which may not include positive payment history, and are often derived from erroneous information which can negatively affect scores.
In addition to support by consumer groups, credit counselors, and affordable housing advocates, SB 691 is backed by the California Department of Insurance. In a May 2003 Department pamphlet, Insurance Commissioner John Garamendi noted that the use of credit information to rate or underwrite homeowners insurance has “the potential to be discriminatory and unfair.”
“Insurance companies assert that there is a correlation between credit scores and insurance risk, but those claims have never been vigorously or independently verified,” said Garcia. “We urge lawmakers to support SB 691, which bans this unfair practice.”

Norma Garcia or Michael McCauley
Consumer Union, nonprofit publisher of Consumer Reports, is an independent, nonprofit testing and information organization, serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition, and other consumer concerns. Since 1936, our mission has been to test products, inform the public, and protect consumers.