In Oklahoma, avoiding credit card debt can hike your insurance premiums

Photo by Seth Anderson / CC BY-NC-SA 2.0
Photo by Seth Anderson / CC BY-NC-SA 2.0

On October 18 at the Oklahoma Capitol, Stillwater resident Jack Bays spoke to a conference room filled with legislators, lobbyists, and insurance professionals. It was his first time in front of a legislative committee, and quite possibly his first time in the Capitol, but he spoke with confidence as he proudly declared his status as a Vietnam veteran. Mr. Bays told the crowd that he was not a man in a suit, paid to be in the room to push an agenda. He said he was at the podium as a last resort. He described seeing his auto insurance rate increase every year even though his driving record remained clean. For a long time he didn’t know why, until he discovered that insurance companies were hiking his rates due to his credit score — which was low because he had no credit cards and no debt.

At this interim study, the Oklahoma Legislature took the first step in addressing this issue. Legislators heard testimony from Jack Bays as well as experts in the insurance industry and leading advocates for consumer protection. Chuck Bell from Consumers Union highlighted key issues that were uncovered in a recent study performed by Consumer Reports using over 2 billion quotes from 700 companies in all 50 states. This research found that in Oklahoma, good drivers with bad credit were paying up to 30 percent more than bad drivers with good credit.

Even more disconcerting, the factors used to determine credit scores and auto insurance rates are not well known by consumers or insurance agents — and they are frequently inaccurate. A survey administered by Consumer Reports National Research Center found that 20 percent of credit reports have errors that could negatively affect credit scores; research from the Federal Trade Commission came to a similar conclusion. One insurance agent testified during the interim study that a consumer could have a high FICO credit score but be penalized on their auto insurance rates for taking out department store credit cards or having a car loan. 

Illustration by Consumers Union

Birny Birnbaum of the Center for Economic Justice describes how consumers can be unknowingly penalized:

“Insurance credit scoring is unfair because it penalizes consumers for rational behavior. For example, if you shop around for insurance, each insurance company will check your credit and increase the number of inquiries on your credit report which hurts your score. If you like to use one credit card for rewards, you get a worse credit score than if you spread the charges over two or three cards because the debt to card limit ratio on the one card is high. If you open a card account at a department store or home improvement store to take advantage of the 10% discount on first time purchases, your score will drop because of the additional inquiry and credit line.”

Medical debt can also negatively impact credit scores and increase auto insurance rates. KFOR told the story of a young man whose credit was destroyed after taking on hundreds of thousands of dollars in medical debt after a motorcycle accident. He can barely afford liability insurance for his 30-year-old truck, and insurance agents tell him his credit score is to blame. Unfortunately stories like this are not uncommon. According to a Consumer Finance Protection Bureau report, over half of all overdue debt on credit reports is from medical debt, affecting one out of every five credit reports in the U.S.  As long as we allow insurance companies to raise rates based on these reports, they will be charging more to the Oklahomans who can least afford it, without any consideration of driving record.

Oklahoma has the highest rate of uninsured drivers in the nation. This practice of “credit scoring”, or using credit score to determine auto insurance rates, may play a role in keeping our uninsured rate high and our cost of insurance even higher. Oklahoma’s high uninsured driver rate affects all drivers, not just drivers who cannot afford insurance. According to the National Association of Insurance Commissioners, Oklahoma’s Uninsured Pure Premium is 2.5 times the national average, which means Oklahomans are paying dramatically more than the rest of the country for uninsured motorist coverage. Consequently, all Oklahomans benefit when we find ways to lower our uninsured driver rate.

Other states have passed legislation or issued regulations that prohibit insurance companies from using credit scores when determining auto insurance rates, while encouraging them to use pricing models that rely on driving record. In Oklahoma, this step towards common sense regulation will require action by the Legislature. It is likely that legislation will be filed this session to take on this issue, and it’s important that the citizens of Oklahoma show their support. Prohibiting insurance companies from raising rates based on credit score would be a great step towards ending an unfair practice and making auto insurance more affordable for all Oklahomans.

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2 thoughts on “In Oklahoma, avoiding credit card debt can hike your insurance premiums

  1. This is a totally one sided depiction of the issue. Did you bother to even consider reporting on the other presentations during the study? Or are you forwarding an agenda?

    The correlation between credit scores and increased risk is well documented. People that are a higher risk should pay for that increased risk, not me. This is one way that my family can benefit from being responsible citizens and those who are not paying their bills can bare the consequences.

  2. Publius, my take-away from this article is that factoring a correlation such as low credit scores and bad driving into the premium equation may be misguided. I personally am interested in knowing that the premium equation penalizes people for avoiding credit cards and living within their means. It’s easy to over-emphasize correlations. What’s harder is looking deeper, asking questions, and pushing for change when change is needed. Kudos to the OK Policy Institute for doing that hard work every day and to Jack Bays for stepping up and participating in the change-making.

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