Withdraws proposal on setting of rates

By Bruce Mohl, Globe Staff, 7/22/2003

he state insurance commissioner abruptly withdrew controversial regulations yesterday that would have allowed insurers to use customer credit scores in setting homeowner's and renter's insurance rates.

Commissioner Julianne M. Bowler also changed her position on whether current law allows insurers to charge customers with poor credit more and those with good credit less.

In a statement yesterday, Bowler said the July 11 hearing on her proposed regulations yielded testimony that indicated more work needed to be done to achieve a consensus on credit scoring.

''For this reason, I have chosen to withdraw this proposed regulation in order to gather more information and fully address important concerns raised by those who testified at the hearing,'' she said. ''We want to draft the best possible regulation.''

Consumer advocates, who had opposed Bowler's regulations by saying it would unfairly penalize the poor, minorities, and those who had gone through a life-changing event like a layoff or divorce, were surprised by Bowler's decision. They said they hoped it would lead to an outright ban on the use of credit scores in setting insurance rates.

''This is a victory,'' said Kerry Smith of the Massachusetts Consumers Coalition, who earlier had called credit scoring this decade's new method of redlining.

''We're pleased that the Romney administration has taken this important first step,'' said Brad Truding, consumer associate with the Massachusetts Public Interest Research Group. ''But we'd like to see it prohibited in any form.''

At a hearing on the regulations July 11, Bowler said current law allowed insurers to use credit scores in setting rates and her regulations were designed to regulate the practice and protect consumers. Yesterday, her spokesman said that in the absence of approved regulations, insurers would be barred from using credit scores to set rates.

Christopher Goetcheus, a spokesman for the Division of Insurance, said the move to withdraw the regulations was Bowler's alone and was not dictated by the Romney administration. ''This was the commissioner's decision,'' he said.

Bowler's acknowledgement that her regulations needed more work was in itself surprising, since she had spent a year gathering information from all interested parties. Prior to the hearing, she said insurers and credit scoring companies had shared information on their models with her and that she was convinced that the use of credit scoring in setting insurance rates was actuarially sound and nondiscriminatory.

''There is a very, very high correlation between a poor credit score and high claims frequency,'' she told the Globe.

But she ran into a firestorm of opposition from consumer groups and elected officials, including Boston Mayor Thomas M. Menino, Attorney General Thomas F. Reilly, and Inspector General Gregory Sullivan.

A bill was filed last week in the Legislature to ban the use of credit insurance in setting insurance rates, and Goetcheus said the division would be watching its progress closely.

Sullivan, who said he was gratified by Bowler's decision, said he was suspicious of the models used by insurers that showed a correlation between credit information and claims frequency. He has requested by today all information gathered by Bowler in preparing the now-discarded regulations and said he plans to seek information on the models from insurance companies.

Goetcheus said Bowler would provide Sullivan with materials by today's deadline.

Bruce Mohl can be reached at mohl@globe.com.