Most drivers think their auto premium is about how they drive, but it is mostly not.
Drivers with poor credit pay 69% more on average than drivers with good credit, per a NerdWallet report from March, and in some cases poor credit costs you more in insurance than a recent DUI. State lawmakers in four states want that to stop.
Bills are pending in Iowa, New York, Oklahoma and Pennsylvania that would generally ban insurers from using "credit-based insurance scores" to price homeowners or auto policies, or both.
The score is a number meant to predict whether you will file a claim, with a lower score meaning higher predicted risk and a higher premium.
Right now, only a handful of states ban the practice. California, Hawaii and Massachusetts block it for auto insurance, while California, Massachusetts and Maryland block it for homeowners.
Recent research from the National Bureau of Economic Research found homeowners with low credit scores pay 24% more than high-score homeowners for identical coverage.
Auto is worse, with the same NerdWallet report finding a 69% gap between drivers with poor credit and drivers with good credit. That is the kind of jump that prices people out of coverage entirely.
Insurers' counter: a 2007 FTC study found that when credit-based scores were applied to a test database, 59% of consumers would have seen premiums fall while only 41% would have seen them rise.
Bob Passmore at the American Property Casualty Insurance Association said scores are a tool to "fairly and accurately assess an individual's risk."
Auto and home insurers like Allstate, Progressive and Travelers all use credit-based scores in most states.
If three or four large states ban the practice, pricing models have to be rebuilt, which would change underwriting margins, especially in homeowners insurance, where the gap is smaller but the policies are stickier.
Past efforts to ban the practice have mostly failed, but the data has changed. NBER and NerdWallet numbers are newer and more public than the 2007 FTC study insurers like to cite.
If one of these four states passes a ban this session, expect more to file in 2027.
