Use of credit reports in setting car insurance rates under scrutiny

Erin Neff

Thursday, March 6, 2003 | 11:30 a.m.

CARSON CITY -- Assemblyman David Goldwater is dead, according to two credit reporting agencies.

And insurance lobbyists begrudgingly admitted Wednesday that the erroneous information on the Commerce and Labor Committee chairman's reports could make Goldwater, D-Las Vegas, pay more for car insurance.

The testimony was in response to Assembly Bill 194, a measure that would ban the insurance industry's practice of using credit scoring to help determine a person's auto insurance rates.

Assemblyman Kelvin Atkinson, D-North Las Vegas, called the practice "insurance profiling."

"There is no correlation between credit and driving records," said Atkinson, testifying on the bill that is a Democratic priority for early passage.

Democrats brought in Birny Birnbaum, executive director of the Austin, Texas-based Center for Economic Justice and a national expert on credit scoring.

"It's inherently unfair," Birnbaum said. "You can have a good credit history and a bad credit score."

The insurance industry countered with four representatives who defended the practice and warned that all rates will rise if credit scoring is banned.

"It's an insurance score, it's not a credit score," said Sam Sorich, vice president of the National Association of Independent Insurers. "There is a difference."

Sorich said insurers use a credit score in concert with information on the age, location, vehicle type and accident history of a driver. Neither he nor the representative from Progressive Insurance, Frank Palmer, could answer questions about how much each factor is used in weighing the insurance score.

Assembly Majority Leader Barbara Buckley, D-Las Vegas, said she wanted to see the data. One of her constituents who was laid off after the Sept. 11, 2001, terrorism attacks and subsequent economic downturn in Las Vegas has complained about credit scoring being used to determine the insurance rates.

"They are just as good a driver before they got laid off as after," Buckley said, referring to the thousands of workers in Las Vegas who lost their jobs.

Assemblyman Morse Arberry, D-Las Vegas, said he wished he could subpoena insurance company data to determine how credit scoring is used.

"We don't believe you," Arberry told Sorich, "because we have constituents that are really being affected."

In Goldwater's case, his father's death was erroneously reported as his. Two credit bureaus immediately dropped his credit rates, as the companies do when someone dies, to protect against identity theft. But that gave the wrong Goldwater the poor credit score.

After Goldwater outlined his problem, a lobbyist for Farmer's Insurance told him that if a credit score caused a change in his auto insurance rates, the insurer would send him a letter telling him how to get a copy of his credit report.

Later Jenny Anderson, a resident of Storey County, testified that she did get such a notice from her insurer, and that she was given 90 days to correct the problem.

"I've been working approximately 150 days and I've gotten nowhere with the credit reporting agencies," Anderson said.

Goldwater later said forcing consumers to fix erroneous information on credit reports might unfairly burden the poor.

"It cost me close to $500 to prove to the credit reporting agencies that I was not deceased," said Goldwater, whose father, David Goldwater, died two years ago.

The committee also heard testimony that neither AAA nor American Family uses credit scoring in determining auto insurance rates. State Farm uses credit scoring for new policy holders only.

Nevada is one of the few states considering a measure to restrict credit information for insurance companies. Legislatures in Arizona and Texas are considering similar bills, the lobbyists said, and Maryland is the only state to ban insurance companies from using credit reports for anything but the initial policy.

The committee took no action Wednesday on AB194, or on Assembly Bill 172, a measure sponsored by David Parks, D-Las Vegas that would prohibit insurers from basing car rates on the ZIP code in which a driver lives.