Los Angeles Times
Originally published Wednesday, March 3,
2004
SACRAMENTO, Calif. -- Allstate Corp. has agreed to pay $3
million to settle state charges that the giant property and casualty insurer
used negative credit information as a reason to deny coverage to at least a
thousand California car owners.
In a case filed in response to complaints from consumers, the state Department
of Insurance alleged that Allstate violated the state's Proposition 103 by
effectively "redlining" poor and minority motorists. Among other restrictions,
the 1988 ballot initiative prohibits the use of credit histories as a factor in
setting auto insurance rates.
Although it agreed to the settlement, Allstate denied it broke any laws.
The use of so-called credit scores -- the three-digit number that lenders use to
evaluate a consumer's creditworthiness -- has become a controversial insurance
underwriting tool in several states. Insurers claim there is a connection
between a person's credit history and the likelihood that he or she will file a
claim.
California Insurance Commissioner John Garamendi contends that using credit
scores to make decisions on insurance coverage is discriminatory. He has
promised to fight efforts by California insurers to use credit scores when
selling auto and homeowners' policies.
"My view, and I've said it very clearly to the insurance companies, is you
cannot use credit scoring in California until you prove it is not
discriminatory," Garamendi said. "We know of no one who has come to us and shown
it is not discriminatory."
Regulators in Texas this year put tight limits on using credit information to
set rates on auto and homeowners' policies. Maryland, Utah, Hawaii and
Washington also have curbed some credit-related rate-making practices, according
to A.M. Best, an international insurance rating and information agency.
California's complaint named two Allstate subsidiaries, Allstate Indemnity Co.
and Allstate Property & Casualty Insurance Co. The state alleged that Allstate
violated state law between December 2001 and July 2003 by turning away
prospective customers eligible to receive "good driver" discounts under
Proposition 103. The company used a variety of methods, including checking
credit scores and requiring up to 100 percent down payments on premiums, to
discourage the new business, the complaint said.
Allstate said it used credit scores only to determine down payment amounts and
payment plans, not rates or types of coverage.
The $3 million fine is "a significant warning shot" because "it's important for
the insurance industry to realize that it will be punished if it crosses the
line on credit scoring," said Doug Heller, executive director of the Foundation
for Taxpayer and Consumer Rights, the Santa Monica, Calif.-based advocacy group
that spearheaded the campaign for Proposition 103.
Heller said that using credit scores when selling insurance was "a particularly
insidious practice" that made it hard for lower-income motorists to obtain
legally required auto insurance -- even if they had no history of being risky
drivers. He likened using credit scores to insurers' now discredited practice of
drawing a redline on a map around a poor community and refusing to sell
insurance to anyone living within the area.
While Garamendi's action against Allstate may have quashed incipient efforts to
use credit scores when selling auto liability insurance, it hasn't resolved an
ongoing debate about using them when rating risk for homeowners' policies.
Currently, the issue remains unresolved in California.
For its part, Allstate said it would continue to press nationally for use of
credit scoring for both auto and homeowners' insurance.
Using credit scores "increases the accuracy of our risk evaluation, controls the
cost of insurance and helps us make insurance more widely available," Allstate
spokeswoman Lisa Wanamaker said.
http://www.magicvalley.com/news/business/index.asp?StoryID=4605
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