A bill introduced in the New Mexico House of Representatives would prohibit insurance carriers from using credit information when underwriting, rating, or renewing personal auto, motorcycle, or RV policies.
House Bill 80 builds on existing state law, which already prevents insurers from denying coverage based on a policyholder’s income, gender, location, sex, race, religion, or marital status, according to a legislative synopsis.
Supporters of the bill argue that banning credit information in underwriting could lead to more insured drivers in New Mexico.
In 2022, the state had the second-highest uninsured motorist rate in the country at 24.9%, compared to the national average of 14%, according to the Insurance Information Institute. The bill’s summary notes that the use of credit scores in pricing disproportionately affects lower-income drivers and contributes to affordability challenges.
However, analysts are saying that the proposal could also have unintended consequences.
As per a report from AM Best, the summary states that removing credit information from underwriting may cause insurers to leave the state or increase premiums for all drivers. A potential rise in uninsured motorists is another concern cited in the analysis.
A 2023 report from the Consumer Federation of America found that car insurance companies’ use of credit scores to determine premiums can result in higher costs for minorities.
This report also referenced New Mexico, noting that a driver in the state with an excellent driving record and excellent credit would pay an average of $412 per year in auto insurance premiums. However, a driver with an excellent driving record but poor credit would pay an average of $733 per year.
The Independent Insurance Agents of New Mexico (IIANM) warned that the bill could impact independent agencies. IIANM CEO Matt Hunton (pictured above) said the legislation creates a competitive disadvantage for independent agents compared to direct writers.
He also pointed to rising auto insurance claim costs and questioned whether this was the right time to eliminate discounts for lower-risk drivers.
The American Property Casualty Insurance Association (APCIA) also opposes the bill, stating that insurers have used credit information for decades as a reliable predictor of claim frequency and severity.
The association reported that New Mexico drivers with good credit save an average of $185 per year compared to those with average credit, while drivers with excellent credit save about $537 annually.
Walter Gonzales, APCIA assistant vice president for state government relations, said that restricting insurers’ ability to assess risk could lead to rate increases for various professionals, including teachers, nurses, seniors, law enforcement, firefighters, and military officers.
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