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San Gabriel Valley Tribune
May 13, 2005
Insurance, credit scores don't mixAssemblyman Ron Calderon's bill allowing insurance companies to use consumer credit ratings to determine eligibility for homeowner policies is bad for consumers and could slow a booming housing market.
Not only is credit history unrelated to whether a home would sustain damage, but this bill that would allow insurers to raise rates and deny coverage based on often highly inaccurate credit reporting smacks of political payback.
The Montebello Democrat's brother, Tom Calderon, received fat campaign contributions from the insurance industry in his failed 2002 bid for state insurance commissioner. Insurers also filled the ranks of Ron Calderon's contributors in his successful race for the Assembly.
Assembly Bill 1454 seeks to overturn a ban on the use of credit ratings put in place by the man elected, Insurance Commissioner John Garamendi. And Garamendi is right in stopping carriers from using something unrelated to damage as even one measure of whether homeowner policies should be offered. According to the state Department of Insurance and the Foundation for Taxpayer and Consumer Rights, a study in Missouri where credit scores are used, found that low-income and minority populations as a whole received much lower scores.
Whether you have two or 10 credit cards in your wallet shouldn't count in homeowner insurance coverage.
Ironically, those with more credit cards -- and therefore a larger possible debt load -- are scored higher than those with one card or none. The clear message being sent by this practice is that those with few or no credit cards aren't credit worthy. Maybe they're just prudent.
Also in a twist of irony, scores for consumers who apply for more credit are scored lower in states that allow credit to be used to determine coverage.
Calderon's bill is little more than a go-ahead for the state's insurers to bypass regulatory agencies to raise rates and further reduce their risk by covering a smaller pool of homeowners.
The cost of all insurance has gone up. That higher cost isn't because of large payouts. No, in most cases, higher pricing simply boosts profits. Certainly businesses should be able to make a profit but gouging ought to be avoided, especially in a near-captive market. According to Pete Moraga of the Insurance Information Network of California, most mortgage lenders require their customers carry a standard homeowner's insurance policy in case of property damage or loss.
The state insurance commissioner is against using credit scores to determine insurance worthiness and consumer activists have decried AB 1454.
We join the chorus and so should homeowners. They should contact their state representatives (see government pages in most phone books or the Internet) or Assemblyman Ron Calderon at (323) 838-5858 or (916) 319-2058 and tell them, no more gifts to insurance companies paid out of consumers' pockets.
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