Credit scoring loses a battle

Ban on use of records to set insurance rates gets boost in Senate

April 05, 2002|By Michael Dresser | Michael Dresser,SUN STAFF

Maryland auto and homeowner's insurance policyholders who run into credit trouble would no longer face higher premiums at renewal under legislation approved yesterday by a Senate committee.

After a lengthy public negotiation, the Senate Finance Committee cleared a less sweeping but still significant version of House legislation banning virtually all use of credit records in setting rates for such insurance.

Unlike the House version, the Senate bill would permit insurance companies to use the industry practice known as "credit scoring" for their initial decisions on to whom to sell policies and at what cost. They could not use credit as a factor in decisions to cancel policies or drive up current policyholders' rates.

Lawmakers in both chambers acted after hearing testimony and receiving complaints from consumers who were surprised to find their rates going up as much as 50 percent to 100 percent despite long periods without traffic offenses or insurance claims.

The compromise bill now goes to the Senate floor, where approval is likely. If the House doesn't agree to the amendments, the bill would go to a conference committee, but the Senate would enter the negotiations with a stronger hand.

House Economic Matters Committee Chairman Michael E. Busch said he hadn't seen the Senate language but was glad to see the bill going to the Senate floor.

"We're a long way from where we started," the Annapolis Democrat said. "I'm glad the bill's still in play."

Gov. Parris N. Glendening will not commit to signing the bill until he has seen it but supports the concept of reining in credit scoring, spokesman Michael Morrill said.

The legislation has been among the most heavily lobbied of the session.

"This is truly the jobs bill for the session," said Sen. John C. Astle, an Annapolis Democrat and Finance Committee member. "Every hired gun that's available has signed up for this one."

Insurance companies, often opposed by independent agents, contended that credit records have been found to be an invaluable predictor of future risk. But many consumers, supported by Insurance Commissioner Steven B. Larsen, didn't see the connection.

The Senate compromise was forged in a pair of open voting sessions during which Chairman Thomas L. Bromwell put on a bravado display of consensus-building. Dickering publicly with lobbyists for insurers and independent agents, as well as with Larsen, he took a bill that divided the panel 6-5 the night before to one the panel supported unanimously.

After the committee acted, the Baltimore County Democrat pointedly warned insurance industry lobbyists that he would resist any floor amendments and could go back to the House version if they attempt to offer them.

After weakening the bill by limiting it to renewals, the committee attached a series of amendments beefing it up again.

Sen. George W. Della, a Baltimore Democrat, successfully pushed an amendment prohibiting insurers from discriminating against insurance applicants because they have no credit history - a protection for people who prefer to use cash.

Della also won an amendment calling for a study of the effect of credit scoring in underwriting on minorities and low-income Marylanders.

Another amendment would require insurers that use credit scoring in setting a policyholder's initial rate to review the customer's credit history for a possible decrease after two years - or upon request.

Insurers will also have to inform first-time customers that they use credit scoring, a practice many consumers were unaware of.

The compromise left advocates on both sides relieved but far from delighted.

John Andryszak, counsel for the American Insurance Association, called it "a mixed result."

By passing the bill, Maryland would join a small but growing number of states acting to ban or curb the use of credit scoring through law or regulation.

The national nature of the struggle was underscored by electronic mail that arrived at legislators' offices yesterday alleging that John Bryant, a Louisiana independent insurance agent who testified for the ban in the Maryland House last month, had been terminated by Allstate Corp. in retaliation.

Allstate lobbyist Jeff Williams acknowledged that Bryant's contract had been discontinued but denied it had anything to do with his testimony.

"He was in fact terminated but for good cause relating to his performance as an insurance agent," Williams said.

Bryant, 45, said there is no reason for his termination aside from his activity on the credit-scoring issue and the fact that he is a "staunch advocate" for fair treatment of agents.

"I was a political, consumer and agent activist," he said yesterday.

Sun staff writer Kristine Henry contributed to this article.

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