Rhode Island Lawmakers Seek to Limit Insurance Pricing Factors

Members of the Rhode Island House of Representatives have submitted a pair of bills this session that would bar insurance companies from taking into account a consumer’s education level, homeowner status and credit history when determining how much to charge for a policy.

House Bill 7411 would enact the credit-history ban, while House Bill 7193 would take care of education level and homeowner status.

All of the representatives who introduced and co-introduced the bills are Democrats.

Rhode Island is only one of many states where legislators have pushed to ban insurers’ use of credit scoring in recent years, but practically every one of those pushes has failed. The only state that successfully got a credit-scoring ban into law in recent memory was Massachusetts, and that state already had a regulatory ban on the practice in place.

Many consumer groups say that partly basing the price of coverage on a policyholder’s credit history unfairly hurts lower- and middle-income motorists. But members of the insurance industry–backed by a number of government studies–say that a driver’s credit history has proved to be a relatively accurate predictor of the frequency at which a driver will file claims, as well as the size of those claims.

Rhode Island auto insurance providers are currently free to use information about a person’s credit history to help gauge the risk that he or she poses, but they have a couple restrictions:

Insurers must demonstrate for regulators that their credit-scoring practices do in fact correlate with the actual risk posed by policyholders. They cannot use scores incorporating variables such as whether a consumer has had any credit inquiries, coverage inquiries or collection accounts that have a medical industry code. And a negative credit trend that’s the result of an “extraordinary life event” cannot be taken into account.

The only current regulatory restriction on use of education level and homeowner status is that insurance providers must be able to statistically show that those factors correlate with a driver’s likelihood of filing a claim.

Both bills have been referred to the House Corporations Committee for review.