In an era of rising living costs, a growing number of state lawmakers are pushing back against a longstanding insurance industry practice: using consumers' credit histories to determine premium rates for auto and homeowners policies. Bills introduced in legislatures across Iowa, New York, Oklahoma, and Pennsylvania aim to prohibit insurers from factoring in credit-based insurance scores, which can significantly inflate costs for those with lower scores, even if they maintain spotless driving records or low-risk profiles.
The push comes amid broader scrutiny of how financial data influences everyday expenses. Credit-based insurance scores, developed by companies like those affiliated with major credit bureaus, assess the likelihood of a policyholder filing a claim based on elements from a person's credit report, such as payment history and debt levels. A lower score signals higher risk to insurers, leading to elevated premiums. "This is the case even if you have a perfect driving record or your risk is relatively low," said Michael DeLong, a research and advocacy associate at the Consumer Federation of America, a nonprofit organization dedicated to protecting consumer rights.
DeLong, whose group supports these legislative efforts, described the practice as "extremely unfair." He argued that it "results in people paying much higher premiums and makes insurance expensive or unaffordable for a lot of people." For instance, recent research from the National Bureau of Economic Research indicates that homeowners with low credit-based insurance scores pay 24% more than those with high scores for identical coverage. Similarly, a March report from NerdWallet found that drivers with poor credit face premiums that are, on average, 69% higher than those with good credit. In extreme cases, the analysis showed, a poor credit score could lead to higher rates than a recent DUI conviction.
Proponents of banning the practice point to the diverse reasons behind poor credit, which may not reflect on a person's insurability. "You can have poor credit for a variety of reasons," DeLong explained. "You can be irresponsible and not pay your bills on time, or you can have poor credit because, say, you lost your job through a big layoff, and that was not your fault … or maybe you went through a divorce or a financial hardship. It's not fair to penalize people." This sentiment echoes concerns raised in past legislative sessions, where similar bills have surfaced but often stalled. Efforts to curb the use of credit history in insurance pricing have largely been unsuccessful in recent years, though a handful of states have implemented restrictions.
Currently, California, Hawaii, and Massachusetts prohibit insurers from using credit history for auto insurance premiums. For homeowners insurance, the bans extend to California, Massachusetts, and Maryland. In most other states, regulations provide some safeguards: insurers cannot rely solely on a credit-based score to hike rates, deny coverage, cancel a policy, or refuse renewal, according to the National Association of Insurance Commissioners (NAIC), an organization representing state insurance regulators. Many states also mandate that consumers be notified if credit information contributes to an adverse decision.
Despite these limits, the practice remains widespread, affecting millions of policyholders. Insurers defend credit-based scoring as a vital tool for risk assessment. Bob Passmore, vice president of personal lines for the American Property Casualty Insurance Association (APCIA), which represents home, auto, and business insurers, emphasized its role in maintaining affordability. "Insurers' use of credit-based insurance scores is one tool to 'fairly and accurately assess an individual's risk to help keep premiums low,'" Passmore said. He warned that eliminating the scores "[would] result in the loss of savings for many consumers and result in rates that are less fair and accurate for all."
Supporting this view, a 2007 study by the Federal Trade Commission (FTC) analyzed a database of policy and claims data. The findings suggested that applying credit-based scores would lead to premium decreases for 59% of consumers and increases for 41%. While each insurer sets its own thresholds for what constitutes a "good" score, a standard credit score can serve as a rough proxy. According to Experian, scores range from 300 to 850, with 300-579 deemed poor, 580-669 fair, 670-739 good, 740-799 very good, and 800-850 exceptional.
The pending bills in Iowa, New York, Oklahoma, and Pennsylvania vary slightly in scope. In Iowa, for example, the legislation targets both auto and homeowners insurance, aiming to eliminate credit history as a rating factor entirely. New York's proposal, introduced earlier this year, focuses on auto policies and has garnered support from consumer groups amid the state's ongoing battles with high insurance costs in urban areas like New York City. Oklahoma's bill, sponsored by state Representative Mickey Dollens, seeks broader reforms, including transparency requirements for how scores are calculated.
In Pennsylvania, the effort is part of a larger package of consumer protection measures being debated in Harrisburg. Lawmakers there cite data showing that low-income households, often disproportionately affected by credit-based pricing, struggle to afford coverage. "We're seeing families priced out of basic protection because of factors beyond their control," said one advocate testifying before a state senate committee last month, though specifics on the testimony were not immediately available.
These initiatives build on a patchwork of state-level actions over the past decade. In 2019, Illinois considered but ultimately rejected a similar ban after intense lobbying from the insurance industry. Maryland's prohibition on credit use for homeowners, enacted in 2009, was hailed by consumer advocates as a model, yet even there, auto insurance remains subject to the practice with limitations. The NAIC has tracked these developments, noting in its latest annual report that 46 states allow some form of credit-based scoring, though with varying degrees of oversight.
Critics of the bans, including APCIA members, argue that alternative risk models could drive up costs industry-wide. Passmore's comments align with industry analyses suggesting that without credit data, premiums might rise by 10-20% for low-risk drivers to offset losses from unpredicted claims. A 2022 study commissioned by insurers echoed the FTC's earlier findings, claiming that 61% of policyholders would benefit from the current system. However, consumer groups counter that such studies often overlook socioeconomic disparities, where marginalized communities face higher denial rates.
As these bills advance, timing could play a crucial role. In New York, the assembly is slated to vote by June, coinciding with renewal season for many policies. Oklahoma's legislative session ends in May, pressuring sponsors to build bipartisan support. Iowa and Pennsylvania face longer timelines, with hearings potentially extending into the fall. Officials from the NAIC have indicated they will monitor outcomes, possibly influencing model regulations adopted by multiple states.
The debate underscores tensions between innovation in pricing and equity in access. While technology has enabled more granular risk assessments—incorporating telematics and even social media data in some cases—credit history remains one of the most controversial factors. DeLong of the Consumer Federation of America urged lawmakers to prioritize affordability, noting that unaffordable premiums contribute to the uninsured rate, which hovers around 8% for drivers nationwide, per recent insurance department estimates.
Looking ahead, success in these states could spark a domino effect. Advocates hope that victories in Iowa or New York might embolden efforts in larger markets like Texas and Florida, where credit-based scoring has drawn complaints in hurricane-prone areas. Insurers, meanwhile, are preparing responses, with APCIA lobbying for compromises like income-based adjustments. As consumers navigate these changes, experts recommend checking credit reports annually and shopping rates, as savings from switching providers can offset score-related hikes.
Ultimately, the outcome of these legislative battles will shape how millions pay for protection against life's uncertainties. Whether credit history continues to influence those costs—or joins the list of prohibited factors—remains a pivotal question for statehouses this year.