Insurance firms defend use of credit reports

Thursday, Jan. 31, 2002 | 9:07 a.m.

CARSON CITY -- Bad credit can mean higher insurance premiums for drivers and homeowners in Nevada.

Insurance Commissioner Alice Molasky-Arman wonders whether that's fair and said she is considering writing state regulations on the use of credit reports to set rates for those who buy auto and homeowner policies.

Federal and state laws permit the use of the information, but Molasky-Arman said she wants to find out if the data is used fairly. Each company has its own formula of using credit histories to set rates.

Twenty-five states are considering prohibiting or limiting the use of credit information for rate-setting, she said. In Nevada, credit reports cannot be used as the sole criteria for rejecting a person for insurance or raising rates.

During a hearing Wednesday, a parade of insurance executives defended the practice while a critic said it discriminates against poor people and minorities who are laid off more frequently than others.

The credit history of an individual is a "valuable tool" in forecasting future losses, Steve Sheffey of Allstate Insurance Co. said. "A credit history is a predictive of auto losses."

Officials from other companies echoed his statements and urged Molasky-Arman not to restrict the use of the reports.

Molasky-Arman told the hearing that credit reports were sensitive to her and others. She was the target of an adverse credit report when she filed bankruptcy "a long time ago" when she was divorced and had to care for three children.

She said clothing and feeding her children were paramount to her and that's why she filed bankruptcy.

Later when she attended law school, she said she received unsolicited credit cards with a limit up to $500,000.

"The subject of credit is sensitive to many," she said.

Onie Cooper of Reno complained the law may allow the use of this information, but it isn't fair. Using the credit reports, he said, affects blacks and other minorities. They are the last to be hired and the first to be fired. That often means they can't pay their bills and they suffer from the use of the credit information, no matter how good a driver they are, he said.

This system, Cooper said, makes it tougher for poor people to buy insurance that is mandatory for autos.

Bob Feldman, president of an insurance company in Las Vegas, agreed, noting that credit records don't judge the driving ability of a person.

Sam Sorich, vice president of the National Association of Independent Insurers, told the hearing that insurance companies don't use a person's sex, race, religions, income or location of their home in ratings.

He said the federal law has permitted the use of this information for 30 years, but companies only recently started to put it into the formula in deciding what level of insurance a customer should pay.

Sheffey said risk takers get into more accidents. And persons who get into financial difficulties are usually bigger risk takers.

Using this system, Sheffey said, people who didn't qualify before are now being written for insurance.