Conn: Bill would ban credit history as an underwriting factor for homeowners insurance

To enhance consumer protections and promote fairness, a new bill has been introduced in Connecticut that would impact what factors insurers can use in underwriting. If passed, this legislation would amend Title 38a of the general statutes and would prohibit insurers from considering credit history when underwriting or determining rates for homeowners insurance policies.

The purpose behind the bill

This bill would create a more equitable insurance landscape by removing credit history from the underwriting and rating processes. Proponents of the bill argue that the use of credit history can be discriminatory—affecting individuals with lower credit scores disproportionately, often due to circumstances beyond their control. By prohibiting its use, the bill would level the playing field for all homeowners—ensuring that rates are based on factors more directly tied to risk, such as the condition and location of the home.

Credit history in insurance: A controversial practice

The use of credit history in insurance underwriting and rating has long been a topic of debate. Insurance companies argue that credit scores are a reliable predictor of risk, with studies suggesting that individuals with higher credit scores are less likely to file claims. However, critics counter that this practice unfairly penalizes individuals facing financial hardships, such as job loss or medical expenses, which may negatively impact their credit scores, but may have no bearing on their likelihood of filing a homeowners insurance claim.

Furthermore, the use of credit history in insurance has raised concerns about transparency and consumer understanding. Many homeowners may be unaware that their credit score impacts their insurance rates, leading to confusion and frustration when premiums seem disproportionately high.

Potential impacts of the bill

If enacted, this legislation could have significant implications for both consumers and the insurance industry:

The broader trend. Connecticut’s proposed legislation is part of a growing trend across the United States to restrict or eliminate the use of credit history in insurance. Several states, including California, Maryland and Hawaii, already have laws in place prohibiting or limiting its use. As consumer advocacy groups continue to spotlight the potential inequities associated with credit-based insurance scoring, similar bills are being introduced in other states.

What comes next?

The introduction of this bill marks the beginning of a potentially lengthy legislative process. Stakeholders, including consumer advocacy groups, insurance industry representatives and policymakers, are expected to weigh in on this issue. Public hearings and debates will likely focus on balancing consumer protection with the insurance industry’s need for accurate risk assessment tools.

Stay informed as this story develops—consumer protection and insurance fairness may soon take another step forward in Connecticut.