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Hatch Targets Insurance Premium Practices
By Elizabeth Stawicki
January 22, 1999
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Many consumers recognize their homeowner and auto insurance premiums are based on risk. If you've totaled ten cars in the past ten years, you can expect to pay higher auto insurance rates. But insurance companies are using another tool to set rates and, in some cases, deny coverage: your credit rating. Attorney General Mike Hatch wants the practice stopped and is proposing legislation prohibiting insurance companies from using credit information.

Sue Simons and her husband have driven for more than 20 years without an accident or speeding ticket. A few months ago, she filed bankruptcy after a string of setbacks in three months: major surgery; the death of her mother and a house fire. Despite her good driving record, however, Allstate cancelled her auto insurance. Her agent said it was because of her credit rating.

Simons: Give us a break. When I first started driving, they looked at your driving record. That's what your insurance was based on; nothing else. I've never been an at-risk driver. In fact, I drive for the Salvation Army. I can drive a Hennepin County car. You've got to have a good driving record to do that.
Some insurance companies are using credit ratings to not only decide coverage but at what price. The Attorney General's office says a not-so-stellar credit rating can mean paying hundreds of dollars more in premiums.

Minnesota Attorney General Mike Hatch wants insurance companies to stop that practice because he says there's no correlation between credit ratings and risk.

Hatch: They ought not be charging on the basis of how much they can gouge people simply because they're not in as good a financial shape as the rest of us. They ought to be doing it on the basis of propensity to have accidents; that's what underwriting is all about. What they're doing is going over the line. They're putting that ladle in the trough and they're hurting the small guy.
The head of Minnesota's Insurance Federation disagrees.
Parsons: If you take good care of your credit, you're probably going to take good care of your car and your home.
Alvin Parsons heads an association that represents insurance companies. He says there is a direct connection between a person's credit rating and risk. He says tying credit ratings to auto and homeowners' insurance makes sense because a credit rating does not discriminate based on a person's gender or color. He also says it costs less.
Parsons: The reason you use them as opposed to going through all the underwriting criteria that you normally do: how many accidents have you had, how long have you been driving and all those sorts of things. They use a credit history for a surrogate for that and it's automated. You get the credit history from the credit bureau and it goes into an economic model and it comes out with a prediction on whether this is a good risk or not a good risk.
Minnesota's largest association of independent insurance agents says the practice puts agents in a tough spot. Dan Riley of the Independent Insurance Agents in Minnesota says at least half of insurance companies rely on credit ratings.
Riley: It's hard to tell a consumer after they've applied that their credit report isn't satisfactory. Some of the things they look at brings your score up or down. Whether you have too many credit cards and you may have too much credit line even though your credit line isn't extended; they take that into consideration.
Minnesota is one of a handful of states in the nation that requires insurance agents to obtain written permission before they access a person's credit record. But at least one man who's worked in the industry for 30 years says some companies don't always take Minnesota's law seriously. Jim Holm says agents are then in the position of jeopardizing their relationships with their companies or following Minnesota's law.
Holm: All laws are open to interpretation and the insurance companies are providing the interpretation for their agents. Agents aren't likely to go against the interpretation of the insurance company. This is causing insurance agents to be in a very bad situation with their clients. Clients view this as an invasion of privacy.
Al Parsons of the Minnesota Insurance federation says he's confident that companies follow Minnesota's law and if they don't, they face enforcement by the Commerce Department. Attorney General Hatch says he's looking for a legislator to author a bill prohibiting insurance companies from using credit ratings to assess risk.

Elizabeth Stawicki covers legal issues for Minnesota Public Radio. You can reach her at