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home / insurance / in the media

Insurance Day
Jul 25, 2003

by Staff Writers

US homeowners' cover confusion in two states

Separate incidents have thrown the homeowners' insurance market in two US states into confusion.

In California, Safeco, one of the major providers of homeowners'insurance in the state, has stopped writing that business after a consumer group challenged the insurer's plans to hike up premiums.

Safeco had tried to push rates up by an average of $132 a year, but its plans were foiled by the Foundation for Taxpayer and Consumer Rights, which appealed to the California Department of Insurance under Proposition 103, allowing members of the public to challenge rate increases.

Before the insurance department published its decision, Safeco withdrew its plans. But it has said it no longer wants to write homeowners'insurance in California, although it intends to continue to push for approval for higher rates.

The company added that the 240,000 existing Safeco homeowners'insurance policyholders would not be affected by the move.

Meanwhile, in Massachusetts, the state insurance commissioner, Julianne Bowler, has withdrawn proposed new legislation that would have allowed insurers to use credit scoring when setting homeowners'insurance premiums.

Ms. Bowler held a public hearing on the issue earlier this month, after which she decided that she needed more inforamtion before progressing with the legiaslation.

In a statement Ms. Bowler said:'For this reason, I have chosen to withdraw this proposed regulation in order to gather more information and fully address important concerns raised by those who testified at the hearing.

"We want to draft the best possible regulation. As such, I welcome and encourage further consultation and co-operation in this process."

The issue of insurers'use of credit scoring is a hot topic in many US states, where regulators are considering introducing their own laws, either allowing or prohibiting the practice.

At the end of last month, the state of California enacted legislation banning insurers from using credit scoring to set premiums, and other states have passed similar laws or placement tight restrictions on the way insurers can use such data (ID, June 30).

At the end of last year the National Conference of Insurance Legislators (NCOIL) approved a model law on the use of credit scoring in underwriting and rating.

As the US Insurance Information Institute notes in its briefing on credit scoring: "Among other things, the model legislation requires insurers to disclose to consumers that a credit report may be used and to notify the policyholder in compliance with the federal Fair Credit Reporting Act when credit is the basis for an adverse action."

"It prohibits the use of credit information as the sole basis for refusal to insure or to non-renew or cance"

"It also bars the use of disputed information or information identified as medical collection accounts in the credit report and encourages insurers to take into account extraordinary life events, such as catastrophic illness or the death of a spouse."



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