Insurance Industry Wins on 2 Bills

SACRAMENTO -- A bill that would outlaw the use of consumer credit scores in deciding a customer’s suitability for homeowner coverage was defeated Wednesday in the Assembly Insurance Committee at the urging of the insurance industry.

A second bill that would have made it tougher for insurance companies to refuse to renew homeowner policies also was rejected during a lobbying blitz that overcame objections from consumer activists and state Insurance Commissioner John Garamendi.

In both cases, several committee members disappeared before the votes, refused to vote when the roll was called or never showed up for the hearing.

The bills by Democratic Sens. Martha Escutia of Whittier and Jackie Speier of Hillsborough were top-priority issues for a coalition of consumer advocates, who said insurers in California were deliberately discriminating against poor and minority homeowners to restrict payouts.

The most controversial bill, SB 691 by Escutia, would have prohibited insurance companies from considering consumer credit scores in deciding whether to sell, terminate or refuse to renew homeowner policies, or using the scores to determine the price of coverage.

Garamendi and the consumer advocates said a customer’s credit record had no bearing on calculating whether the individual was likely to file homeowner claims. They said use of credit ratings fell hardest on low-income and minority Californians, who were considered bad risks because, in some cases, they had no credit history.

Supporters of the proposal said these people paid their bills, but had no credit ratings because they did not open charge accounts, use credit cards or go into bankruptcy.

“Insurers must not be allowed to deny coverage to large groups of people simply because they don’t meet an arbitrary criteria,” Garamendi told the committee. “The poor, minorities and [single] women can be excluded because they don’t fit a credit profile.”

To assert that a weak credit score leads to the filing of an insurance claim is “like arguing that a full moon causes crime,” Garamendi said. He said unless the law was changed, insurance companies were certain to use credit scores as a “new tool for redlining” against homeowners in low-income and minority communities.

Insurers countered that there can be a correlation between an applicant’s credit rating and the likelihood that a claim for losses would occur. “Analysis shows a correlation between some credit characteristics and the likelihood of a homeowner’s insurance loss,” said Samuel Sorich, president of the Assn. of California Insurance Companies.

Garamendi, who noted that there was a “crisis” in the availability of homeowner insurance, said that of the 166 homeowner insurance companies operating in California, only about 17% used credit scores and these were relatively small companies. Later, an insurance department spokesman said further analysis had determined the figure to be only 12%.

Escutia said the practice was “subjective and unfair” and did not establish a “causal connection” between credit and risk of loss.

The committee, dominated by Democrats, defeated the bill, sponsored by the Foundation for Taxpayer and Consumer Rights, on a 7-6 vote, three short of the number needed for approval.

The same cast lined up to support and oppose Speier’s bill, SB 64, which would have restricted the ability of insurers to refuse to renew a homeowner’s policy unless the home had become “uninsurable,” which opponents complained was not defined in the bill. The measure was defeated on a 3-5 vote.

Speier, who amended the bill at the last minute in an unsuccessful attempt to make a compromise, told “horror stories” in which insurers had refused to renew policies for flimsy reasons, including a policyholder’s simple inquiry as to whether a specific item was covered.

“If you call up and ask, ‘Is this covered by my policy?’ you would be written up as having made a claim,” she said.

But insurance industry witnesses said the bill would limit their “flexibility” in running their business, noting that Garamendi would have veto power over guidelines that governed nonrenewal practices.

Such “over-regulation and micromanagement, we believe, would have a negative impact on the market,” said G. Diane Colborn of the Personal Insurance Federation.