Providing Individualized, Responsive Representation To Every Client

Can insurance companies use credit to set rates?

On Behalf of | Jun 29, 2023 | Personal Injury Defense

There is a current discussion in New York about the right of insurance companies to use credit information to determine rates. A company may come up against some backlash for this practice.

However, New York law says it is legal to base rates, at least in part, on credit information. Still, the law also places many restrictions on the use. Companies need to be aware of these so as not to jeopardize their business.

Discriminatory information

While credit reports contain a lot of information, an insurer cannot use details to discriminate. For example, age, gender or religion cannot factor into the determination of an insurance score for setting rates.

Use of the report alone

An insurer cannot only use the credit report as the means by which to set a rate. They have to look at other factors to come to a final determination.

Other restricted practices

Insurers also cannot factor in medical collections when considering credit. They cannot count inquiries made for mortgages or auto loans.

It is important to note that using the credit report as a portion of the factors that will eventually decide a person’s insurance rates is fine. Still, some people believe any use of credit is detrimental to those in lower income brackets and could result in them having difficulties securing auto insurance.

For the time being, the state does still give insurers the right to consider credit information. This could very well change in the future if groups lobbying to end the practice convince lawmakers it is wrong.