This bill would prohibit insurers from using credit scores and credit information to underwrite and set rates for auto and homeowner insurance policies. Not all states allow credit scoring, but Arizona does.
The timing of this bill is interesting, as an FTC report released last summer indicates that credit scores could indeed be an effective indicator of risk.
What's also interesting is the fact that credit plays a major role in whether someone pays a high interest rate for car loans and home loans. Why the use of credit scoring would not be allowed in insurance calculations is puzzling, when most indications are that it actually does help insurers further clarify their efforts in segmenting their best clients. They are (after all) in the business of making a profit. Not everyone likes insurance companies, but we sure want them financially stable and profitable so they can pay our claims when they happen.
The issue with Rep's such as Gutierrez is the concept of whether credit scoring is fair to all consumers. Certain ethnic groups tend to have lower scores and, as logic would follow, pay higher insurance premiums as a result because their insurance scores would be lower (worse) than other groups. This would place them in insurance tiers with higher premiums.
Perhaps we also need more education about how people go about having good credit, establishing good credit and even re-establishing credit. I would love to see classes like this in high schools, for example.
Furthermore, why does the U.S. not require classes that strongly educate kids on finances in great detail, such as 401k's, mutual funds, IRA's and such. We have kids graduating high school without educating them thoroughly on investing, saving money, setting up budgets, establishing and keeping good credit - and why that is important. They go to college and get inundated with credit card offers. Great - another generation hooked on being in debt.
As a side note, insurance companies have professed that auto and homeowner premiums would increase if the use of credit scoring was prohibited. That effect is yet to be seen. It may be true, but competition still exists out there and that's always good for the consumer.
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