Editorial: Bad credit not a risk for drivers

Friday, March 7, 2003 | 9:31 a.m.

We are adding our voice to those of many others around the country who are asking why car insurance companies are allowed to go poking around in the credit ratings of potential clients. The root of the problem is the federal Fair Credit Reporting Act, which allows insurance companies to go credit snooping without first obtaining permission from the individual being checked. The rationale for this is explained on the Web page of the Allstate insurance company: "Federal law recognizes the legitimate need of insurance companies for credit information and that it would be inefficient to require permission." Inefficient. Hmmm. Allstate may have gauged that reaction, as it hastily adds that the company informs new business customers "upfront" that credit reports will be ordered. It also states the company is required by law to notify potential clients "wheneve r adverse action is taken based on information from credit reports ..."

Our question, however, mirrors questions that surfaced this week in the Nevada Legislature during a hearing on Assembly Bill 194. This bill would make it illegal for car insurance companies to consider a person's credit information in determining his insurance rate. Legislators asked why credit is relevant. Assemblyman Kelvin Atkinson, D-North Las Vegas, said, "There is no correlation between credit and driving records." Assemblywoman Barbara Buckley worried about the car insurance rates of all the people who were laid off after Sept. 11. "They are just as good a driver before they got laid off as after," Buckley said.

Insurance industry executives attending the hearing were of little help in explaining the practice. They could not even say how much weight is given to credit reports versus other, relevant factors, such as accidents and traffic tickets. The Allstate Web page, however, gives some insight. It says the company analyzed more than 30 articles and professional studies on the subject that "point to the added stress that financial pressures can bring and the possibility that financial difficulties may indicate a tendency toward greater risk-taking behavior -- either of which can mean a higher likelihood of accidents."

We would rather see insurance rates based on clients' driving and claims records -- statistics that provide for a fairer risk assessment than postulations about what drivers' behavior "might" be if they have a financial setback. The Legislature is correct to be considering this bill. Not all insurance companies use credit information, but enough do to make the practice a serious concern.