Utah Legislature Passes Bill Allowing Credit-Based Scores for Underwriting and Discounts

Legislative action was completed March 6 on Utah House Bill 110 after the bill was amended to allow insurers to use credit-based insurance scores for initial underwriting in auto insurance. On rates, the bill still allows the scores to be used only to give customers discounts, which in effect destroys their usefulness according to the National Association of Independent Insurers (NAII).

The Senate amended HB 110 to allow insurance scores to be used in initial underwriting as long as other risk-related factors also were considered and then passed the measure. The House concurred later in the day, the final day of the legislature’s 2002 session. The bill now goes to Gov. Michael Leavitt.

“Allowing auto insurers to use insurance scores in initial underwriting improves HB 110 somewhat,” National Association of Independent Insurers (NAII) Counsel Ann Weber, said. “But the bill destroys the real value that insurance scores can provide to most consumers because insurers will not able to set rates according to what the true risk is.

“Numerous studies and experience have demonstrated conclusively that insurance scores are an excellent tool for predicting who will file an insurance claim in the future. If not restricted by arbitrary mandates such as HB 110, those scores enable insurers to base their rates on actual risks involved, which is fairest to everyone.

“But insurers may not be able to lower their rates for most of their customers, who have lower insurance scores, if they are prohibited from charging offsetting higher rates to individuals who pose greater risks. In other words, the scores could lose their value and most insurance customers would continue to subsidize people who are higher risks.”

Insurers have found a high correlation between insurance scores and loss costs. The scores supplement other sources of underwriting and rating information that may be subject to errors, underreporting or misrepresentation.

“Insurance scores do not consider income, address, race, gender or marital status,” Weber asserted. “They provide an objective and unbiased tool for underwriting and rating insurance risks. Insurers should be encouraged to use those scores as much as possible, to benefit most consumers.”

Other bills that NAII opposed at least in part but which passed in the legislature’s closing hours included:

HB 342, allowing rental car companies to obtain diminished value and administrative fees incurred in collecting a claim for a damaged vehicle.

Senate Bill 119, revising some provisions for reporting liabilities for premium assessments related to workers’ compensation insurance and adding actuarial, accounting and legal experience as fields from which directors of the state Workers’ Compensation Board are selected.

SB 171, a Uniform Arbitration Act bill that includes a provision allowing for an award of punitive damages.

Topics Carriers Underwriting