Governor signs bill on insurance

Use of credit history to raise premiums, deny coverage will be barred

May 17, 2002|By Michael Dresser | Michael Dresser,SUN STAFF

Ignoring industry protests, Gov. Parris N. Glendening signed a bill yesterday that will bar insurers from raising policyholders' premiums or denying them coverage because they run into credit trouble.

The legislation makes Maryland one of a small but growing number of states to pass laws curbing "credit scoring," insurance companies' practice of using a customer's bill-paying history as a major factor in deciding whether to issue a policy and how much to charge.

Few bills passed during this year's legislative session are likely to have as much of an impact on consumers.

"Every Marylander identifies with this because they either own a home or buy auto insurance," said Del. Michael E. Busch, chairman of the House Economic Matters Committee and the bill's strongest advocate.

Glendening signed the bill despite pleas from the insurance industry for a veto. The American Insurance Association said the law would hurt consumers with good credit and threatened to take the state to court in an effort to get it thrown out.

"It is by far the most extreme legislation that's been enacted on this subject and is the most violative of federal law," said David F. Snyder, assistant general counsel of the trade association.

Snyder said important provisions of the Maryland law would be pre-empted by the federal Fair Credit Reporting Act.

"We're certainly going to be looking at a legal challenge," he said, "but I can't predict that right now."

Michelle Byrnie, the governor's press secretary, said Glendening didn't accept the industry's arguments.

"He felt strongly that it would protect consumers and their access to homeowner's and auto insurance," she said.

Byrnie said the legislation has been scrutinized by the state attorney general's office and the governor's counsel, and that they are confident it would be upheld.

The legislation will prohibit the use of credit scores in making decisions about homeowner's insurance. It does allow an individual's credit history to be used as a factor in setting initial auto insurance rates, but it prohibits companies from denying coverage or raising rates because of bad credit scores.

Proponents of the legislation contended that credit scoring unfairly penalizes low-income consumers, minorities and people who prefer to deal in cash. One of its provisions forbids companies to charge auto insurance customers more than the standard rate because of a lack of a credit history.

Snyder said the bill could mean higher rates for low-risk policyholders because insurance companies will have to cover the losses of higher-risk consumers.

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