Agents, insurers at odds over credit scores

The state’s automobile insurance companies and the agents who represent many of them are on opposite sides of a hot-button issue: Should the companies be allowed to consider a driver’s credit history, occupation, and educational level when setting rates?

It may seem like an academic argument right now, since state regulations already prohibit companies from using the three rating factors. But both sides are acting as if the regulations could evaporate at any moment, and pushing legislation favoring their point of view.

First, some background. Insurers make their living by evaluating risks, and they say a driver’s credit score, occupation, and educational attainment level are all good indicators of whether that person is likely to file claims. The theory is that someone who pays their bills on time, has a good job, and earned an advanced degree is responsible – and therefore less likely to drive irresponsibly.

Opponents say that’s hogwash. They say a driver’s credit score, occupation, and educational attainment have nothing to do with an individual’s driving habits, and using those factors to set rates is only going to result in higher premiums for poor people and minorities.

The Patrick administration struggled with this issue when it opened the state’s automobile insurance market to competition in 2008. Most states allow insurers to use socioeconomic rating factors in evaluating drivers. Nonnie Burnes, Patrick’s insurance commissioner at the time, wanted to limit their use, at least initially, but the pushback was so strong that she ultimately approved regulations prohibiting their use entirely.

It wasn’t long before agents and companies started maneuvering on the issue on Beacon Hill. The Massachusetts Association of Insurance Agents proposed legislation last session to make the Patrick administration’s regulatory prohibition permanent by incorporating it into state law. The bill failed to pass and was refiled again this year.

House Majority Leader Ron Mariano of Quincy, acting on behalf of most of the state’s insurance companies, countered with legislation that would allow insurers to use credit information in setting rates. The agents then responded by filing the initial paperwork to take the issue directly to voters through an initiative petition process.

The agents say they are just standing up for their customers, fighting a practice that is, to quote their press release, “unfair, discriminatory, and unreliable.” But the agents haven’t always felt that way. Back in 2005, they testified in support of legislation that would have allowed insurers to use credit scores in setting rates. Their national association, the National Association of Insurance Agents, also supports the use of credit scores.

Many think the Massachusetts agents are fighting the use of socioeconomic rating factors for business reasons. National insurers like Geico and Progressive, which typically sell policies directly to consumers and don’t use agents, haven’t marketed their products aggressively here yet, in part because they haven’t been able to use credit scores in setting their rates. The agents would like to keep it that way.

Daniel Foley, vice president of government affairs for the Massachusetts Association of Insurance Agents, says his group has no ulterior motives. “Our members aren’t afraid of competition. We just don’t feel it’s right to use these factors,” he said.

Attorney General Martha Coakley, who ultimately must approve the language of the agents’ ballot question, is very familiar with this issue. She fought for the initial regulatory ban on the use of socioeconomic factors and subsequently issued a report in 2009 that said the Patrick administration’s move to competition wasn’t benefitting everyone equally.

The report said premiums were dropping far less than they would have had the state continued to set rates. The report also said a fifth of Massachusetts drivers, mostly minority and low-income residents, were paying higher premiums now than before managed competition, in part because insurance companies were using proxies for some of the banned rating factors. A customer’s payment history, for example, could be a substitute for the information revealed by a credit score.

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Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

Coakley last summer proposed her own regulations to address the proxy problem, but then kept extending the comment period over and over again. After nearly a year of delays, she quietly withdrew her proposed regulations.

Now the agents are pushing a ballot question that would prohibit the use of credit scores, occupation, and education in setting auto insurance rates. It would also bar the use of proxies for these factors. It’s still a long way until the election in 2012, but this issue is one that just won’t go away.