Isle insurers
told to confess use
of credit data

State Farm's admission of
the illegal practice spurred
the probe by the state
commissioner

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By Lyn Danninger
ldanninger@starbulletin.com

The state insurance commissioner has given Hawaii's auto insurers until next Friday to say whether they use consumer credit histories when determining auto insurance rates.

The practice is prohibited by Hawaii law. Moreover, auto insurers should be aware of that since Hawaii's legislature passed the law in 1987, Insurance Commissioner Wayne Metcalf said.

"There's no reason any insurance carrier should not be conversant with any aspect of the law," Metcalf said. "You cannot use a credit report in any fashion, either directly or indirectly to determine rates. It can't be any clearer than that."

The order comes in the wake of auto insurer State Farm's admission that it uses "certain credit characteristics" in its underwriting model to set rates.

The state Insurance Division investigated State Farm's rate-setting practices and then followed with letters querying Hawaii's other auto insurance companies.

State Farm has since agreed to discontinue the practice.

But it does not agree with the Insurance Division's stand on the issue, said company spokeswoman Carolyn Fujioka.

"Based on our discussions with the Insurance Division, we have agreed to suspend our use of that underwriting model although we disagree with their position," she said.

Fujioka said State Farm has not yet determined whether it will challenge the division's interpretation of the law, either in court or at the Legislature.

"We don't have any plans to do so at this point, but we look forward to continued discussion with the Insurance Division," she said.

In recent years consumer credit history has been used as a tool for determining auto insurance premiums in many mainland states.

The practice is drawing increasing criticism from consumer advocates who believe the information could unfairly target the poor and minorities. At least 20 states have introduced legislation to prohibit or at least restrict the practice.

How many of Hawaii's insurers have used consumer credit to determine policy rates won't be known until all companies who are licensed to sell auto insurance in the state respond to the commissioner's letter. Those companies could number as many as 280. Most of those companies do not actively sell auto insurance.

At least two of Hawaii's largest insurers, Geico Direct and AIG Hawaii, say they don't use credit data to set auto rates. But the practice has merit, they say.

They believe it is a valid tool that together with other predictors, such as a person's driving record, helps paint a more accurate picture of their risk as a driver.

"It's a predictor, no question, said Geico's Hawaii President, Tim Dayton.

Dayton concedes that use of credit reports to determine insurance premiums could hurt those with bad credit.

But a great many people with good credit may also improve their auto insurance rates if the reports were used, Dayton said.

AIG's President, Robin Campaniano, said his company makes limited use of credit reports but only in relation to commercial or individual customers who request a payment plan rather than making one lump payment.

But even in that instance, there is no hard and fast rule, he said.

"We don't have a specific model that says you shall subject a person to the ultimate scrutiny. Like a lot of other things, it's a judgment call," he said.

At least one auto insurer, other than State Farm, appears to take credit into consideration when setting rates, according to information listed on its Web site.

Progressive Insurance, based on the mainland, lists credit report information as one of the factors it may use to determine Hawaii premiums, along with motor vehicle reports and claims history.