A measure on Oregon’s ballot would prohibit insurance companies from using credit scores to decide how much to charge applicants, but the campaigns for and against the measure disagree about how it would affect college students.
Measure 42 would prevent insurance companies from using the score, which is a calculation based on an individual’s credit history, to determine rates for people applying for medical, health, accident, automobile, fire, or liability insurance.
Supporters say insurance companies should stop using credit scores, which may be based on inaccurate information, and should rely on other factors, such as driving histories that can indicate a person’s level of risk.
Opponents say that credit scoring is a valid method for insurance companies to determine risk and to fairly price premiums for their customers.
Bill Sizemore, executive director of Oregon Taxpayers United and a frequent measure author, wrote the measure after he heard about the practice and “was incensed by it,” he said.
Sizemore has previously written initiatives on issues dealing with property taxes, state unions and Oregon’s light rail system.
Insurance companies in Oregon use credit scoring mostly for homeowner’s and auto insurance, but Sizemore added other types of policies to the measure so that insurance companies wouldn’t start using credit scores for them as well.
A redundant law?
The Oregon Legislature passed a bill in 2003 allowing insurance companies to use credit scoring for customers as long as they also rely on other relevant factors for determining premiums, disclose the use of credit scoring to new applicants and report their credit scoring models to the Insurance Division of the Department of Consumer and Business Services.
The law prevents insurance companies from using credit scoring to increase customers’ premiums or to cancel their coverage.
Sizemore said his measure is an extension of the 2003 law, which he said was a compromise with the insurance companies.
“The fact that there was even a compromise is evidence of how powerful the insurance company is,” Sizemore said.
The measure has attracted the endorsement of the Consumers Union, the non-profit publisher of Consumer Reports magazine.
Norma Garcia, a senior attorney for the Consumers Union, said the passage of the measure would allow people to compete on a level playing field for insurance based on their risk and claims histories rather than on their credit histories.
“This is basically taking credit data and using it for some other purpose,” Garcia said. “That’s a little hard to defend, especially when there are so many other ways to figure out how much you should charge someone for their insurance.”
But opponents of the measure, which include several insurance companies and business groups throughout Oregon, say Oregon’s consumer protection laws, considered some of the most restrictive in the nation, are enough to deal with any consumer concerns about their insurance.
Pat McCormick, a spokesman for the Measure 42 opposition campaign, said the measure imagines that the 2003 law never passed.
Insurance companies started looking at credit history, which includes such information as bill-paying history, late payments, collection action and outstanding debt within the last 10 years, because it helps determine how well they can manage money. Each company weighs credit scoring and the factors for determining risk in different ways, McCormick said.
“Insurance companies are primarily opposed to it because they believe that this has been a tool that helps them get much better at fairly pricing their insurance products,” McCormick said. “Insurance companies are trying to discern not how much money you have, but how well you manage the money you have.”
If the measure passes, the majority of Oregonians with good credit will pay more for premiums and will be forced to subsidize Oregonians with bad credit, opponents say.
“If you take away the ability to price that way for insurance companies, they have to be blind to the information they know helps them determine risk,” McCormick said. “That means those people are going to be paying more, even if they have less chance of filing a claim and as a consequence, they are subsidizing people who have a higher likelihood of filing a claim.”
However, supporters argue that there is no correlation between a person’s low credit score and how likely they are to file a claim.
College credit
Supporters and opponents also disagree about how credit scoring affects college students, who tend to have bad credit or a lack of credit history.
McCormick said college students tend to pay higher insurance rates because they lack credit history, but credit scoring doesn’t disadvantage them.
Yet Garcia and Sizemore argue that college students would benefit from the measure.
“We’ve talked to agents who have told us that one of the most difficult situations they’ve seen is when they have young doctors graduating from medical school who are shopping for insurance, and they can’t offer them the best rates because they’re so loaded down with student loan debt that their credit scores are really horrible,” Garcia said. “Yet when you look at their earning potential and the benefit they provide to society, one would think they should be able to get the best rates.”
Sizemore has raised little money to support the measure, while opponents of Measure 42 have spent more than $5 million on the campaign, according to financial filings on the secretary of state’s Web site. Sizemore said the money he could have raised for the measure’s campaign wouldn’t have made a dent, so he is using a grassroots approach.
“We’re doing all the stuff you can do that doesn’t cost money,” Sizemore said.
McCormick said the only way to decide how to vote is to ask.
“If people want to make the choice on this measure based on how it impacts them, I suggest that they talk to their insurance agents about it and they’ll get helpful information about it,” McCormick said.
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