Currently, California, Hawaii, Maryland, Michigan and Massachusetts prohibit or limit the use of credit ratings by insurance companies to determine policy rates. California insurance companies do not use credit ratings or your credit history to underwrite or qualify auto policies, or to set rates for homeowners insurance. As a result, your credit won't affect your ability to get or renew a policy, or the amount you pay in premiums. Hawaii prohibits the use of credit ratings by setting standards, including underwriting standards and rating plans, that determine your premiums.
However, your credit may affect your home insurance. In Maryland, homeowners insurance companies cannot deny you coverage, cancel a policy, refuse to renew your policy, or base their insurance rates on your credit history or lack of credit history. Auto insurers can use your credit history to determine the rates of a new policy, but they can't use it to deny your initial application, cancel a policy, refuse to renew it, or increase your premiums during the renewal. Massachusetts law prohibits auto insurance companies from using credit information or credit-based insurance ratings when setting rates, underwriting a new policy, or renewing an auto policy.
Home insurance rates can't be based on your credit either. Michigan insurance companies cannot use their credit or credit-based insurance rating as part of the decision-making process to deny, cancel, or refuse to renew an auto or home policy. In addition, auto insurers can't use your credit score to determine your rates. In Oregon, insurance companies cannot cancel a policy or refuse to renew a policy because of their credit.
Nor can they deny your initial application based solely on your credit, and there is a limit to the information in your credit report that can be used to subscribe and qualify your policy. As in Oregon, Utah, insurance companies can use your credit information when initially underwriting an auto policy, but that can't be the only factor used to make the decision. Once you've been a customer for 60 days, the company won't be able to use your credit information to cancel or refuse to renew your policy, or deny coverage for a new vehicle that you or some family members own. In addition, auto insurance companies can only use credit information to offer you a discount on your premiums, not to charge you more.
And, once it's in effect, they won't be able to remove the discount based solely on a change in your credit. Three states, California, Hawaii and Massachusetts, prohibit insurers from using credit ratings to determine how much drivers should pay. In addition, legislation was introduced this year in nearly a dozen other countries to prevent insurance companies from using credit scores, occupation, education level or other standards when considering how much they should charge for car insurance, according to the National Conference of State Legislatures. Four states (California, Massachusetts, New York and Michigan) currently prohibit the use of education and work level in auto insurance prices.
California, Hawaii, Massachusetts and Michigan have banned the use of various types of credit information to set auto insurance prices. Heller said that, to improve fairness in setting rates, states should eliminate socioeconomic factors and emphasize driver safety, strengthen oversight of the prices charged by insurance companies, and create low-cost insurance programs for drivers who qualify. In most states, insurance companies can use credit-based insurance ratings to help them make decisions about who to insure and how much to charge. In a lawsuit, insurers argue that using credit ratings to determine insurance premiums and eligibility for coverage is justified because ratings are generally good predictors of future insurance claims.
State insurance regulators generally don't allow insurance companies to use a credit-based insurance rating as the sole reason for making a decision. In response to the COVID-19 pandemic, the state of Washington adopted a temporary rule that prevents insurance companies from using credit information to adjust the rates or premiums of insurance policies, such as those for cars, homes or renters. But here's a list of states that impose stricter rules on the use of credit data and credit-based insurance ratings for auto and homeowners insurance policies. They argue that restricting insurers from using credit ratings to calculate insurance rates is an exaggerated government measure that will restrict the free market and cause insurance rates to increase for more than a million consumers.
Generally, states have not passed laws that restrict their use for life insurance purposes, although that could change as the use of credit-based insurance ratings has increased rapidly in recent years. .
