Advocates say it’s too weak
AUGUSTA – A new law aimed at protecting Mainers from insurance companies that have been using credit ratings to determine coverage eligibility and premium rates on home or car insurance takes effect in September. But a consumer advocate says the new law falls far short of protecting Mainers.
“On a scale of zero to 100, this ranks about a 1.5,” J. Robert Hunter of the Consumer Federation of America, said last week. “It really does very little to protect consumers.”
Hunter said only banning the use of credit rating scores will protect consumers from what Hunter describes as a “sham” process. He said Maryland, Hawaii and California have banned the use of credit scores in determining eligibility or rates for at least one of the personal lines of insurance.
Rep. Marilyn Canavan, D-Waterville, sponsored the measure. She said last week her original bill would have banned credit scoring, but she did not have the support in committee to get that measure passed.
“I wanted to get something on the books,” she said.
That legislation was also endorsed by Maine Insurance Superintendent Al Iuppa. He told the panel insurers he was restricting how credit scores are used through existing law, but insurers were using the ratings in new ways.
“What has changed in recent years is the use of credit history for rating purposes,” he said. “Initially, there were only a handful of insurers using consumer credit information for rating, but the number has increased substantially over the last year or two.”
Canavan said she believes the practice should not be allowed, but had to compromise to “beat back the lobby” on the legislation. She said the insurance lobbyists were out to kill the measure.
“We think the Maine legislation, which is modeled on language drafted by insurance commissioners across the country, is a fair compromise that protects consumers and allows insurers to use a proven rating tool,” Michael Moran, spokesman for the American Insurance Association, said last week.
Hunter said the fact the legislation is endorsed by the insurance industry should concern consumers. He said the real motivation of insurers using the credit scores is to target wealthy individuals for other products that can be packaged with the basic insurance policies they need.
“No one has ever been able to show me how there is a connection between your credit and your insurance,” he said. “It just does not make any sense.”
Moran disagreed. He said the industry has several studies that show that there is a statistical correlation between credit scores and insurance worthiness. Hunter discounted that argument.
“Out in California they did a study that showed there is a statistical correlation between hair color and accident rates,” he said. “Nobody is suggesting we set insurance rates because of a person’s hair color.”
Hunter, who lives in Rangeley during the summer, said he is sure Mainers will be surprised to find out the state is allowing their credit ratings to be used in determining insurance eligibility or cost.
“This is only a start,” she said. “I wanted a far stronger bill, but it was quite a battle with the insurance lobby getting any bill through.”
Canavan said she considers the legislation significant and important because Maine has no laws directly concerning credit scoring and has relied on the regulatory authority of the Superintendent.
“You can be sure this is not the only bill I will introduce on this,” she said. “I am persistent and I certainly will be persistent on this issue.”
The new law, signed by Governor John Baldacci last month, takes effect in September.
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