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F I S C A L I M P A C T R E P O R T

SPONSOR Stewart

DATE TYPED 2/21/05

HB 973

SHORT TITLE Prohibit Certain Personal Insurer Actions

SB

ANALYST Wilson

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

Relates to SB 560 and SB 359

SOURCES OF INFORMATION

LFC Files

Responses Received From

Public Regulation Commission (PRC)

Public School Insurance Authority (PSIA)

SUMMARY

Synopsis of Bill

House Bill 973 places restrictions on insurance companies regarding how they can use consumer

credit information in the underwriting and rating of personal insurance policies such as automo-

bile and homeowners insurance.

An insurer authorized to do business in New Mexico shall not:

•

deny, cancel or not renew a policy of personal insurance solely on the basis of credit in-

formation without consideration of any other applicable underwriting factor independent

of credit information;

•

base an insured's renewal rates for personal insurance solely upon credit information

without consideration of any other applicable factor independent of credit information;

•

take an adverse action against a person solely because the person does not have a credit

card account without consideration of any other applicable factor independent of credit

information; or

House Bill 973-- Page 2

•

consider an absence of credit information or an inability to calculate an insurance score in

underwriting or rating personal insurance.

Significant Issues

In recent years most insurance companies have been using credit report information to help them

determine whether to accept, and how much premium to charge, applicants for automobile and

homeowners insurance. Insurers do so because many studies indicate a correlation between con-

sumers’ credit standing and their costliness as insurance customers.

Many consumers and consumer advocate groups oppose this use of credit information. Consum-

ers often do not believe that credit history can be an indicator of whether they will have an

automobile or homeowners’ insurance claim. Consumer advocates often believe that various

low-income and ethnic groups have poorer than average credit histories and are further disadvan-

taged by having to pay higher than average premiums due to credit rating.

The superintendent of insurance convened a task force in 2002 to advise him on this issue. The

task force concluded its study in October 2002 and submitted to the superintendent a list of rec-

ommendations for regulating the use of credit report information in the rating and underwriting

of both automobile and homeowners insurance in order to protect consumers from abuses.

RELATIONSHIP

The PRC notes SB 560 includes all the consumer protections contained in this bill as well as a

number of other important consumer protections, including requiring insurers to:

Disclose to consumers that their credit information is being used as well as list the key

negative items in their credit reports

Provide exceptions for consumers whose credit has been negatively impacted by medical

and other extraordinary life circumstances beyond their control

Rectify premium charges and other actions if credit report errors are uncovered

Ignore from credit reports all credit inquiries made by consumers

File with the Insurance Division their underwriting guidelines related to the use of credit.

SB 359 bans the use of credit information in the rating of automobile insurance but allows insur-

ance companies to deny an application for insurance based on credit information. It also does

not address the use of credit in homeowners insurance.

POSSIBLE QUESTIONS

The PRC asks why the section 2 applicability date of January 1, 2006 does not match the section

3 effective date of July 1, 2005.

DW/lg