Credit-based insurance scores are used to help adequately risk-based price homeowners insurance, so lower risk consumers are not subsidizing higher risk ones, the Insurance Information Institute said.
Triple-I's comments came in response to a letter to six insurers signed by 20 members of Congress, led by Sen. Elizabeth Warren, D.-Massachusetts in her role as ranking member of the Senate Banking, Housing and Urban Affairs Committee, and Rep. Ayanna Pressley, also a Massachusetts Democrat.
Homeowners insurance now makes up
In some states, like Nebraska at 19.4%, the share is much higher.
The
Flood insurance is a separate policy, which is required if the borrower
The letters claim that
"Recent research found that homeowners with lower credit scores pay 24% more — an average of $550 per year — for identical homeowners insurance coverage than homeowners with higher credit scores," the letters state. Each letter ends with a series of 12 questions they are requesting the six companies — USAA, State Farm, Progressive, Liberty Mutual, Farmers and Allstate — to respond to by Aug. 17. National Mortgage News reached out to the six companies.
The insurance industry response
Insurers use credit information, referred to as insurance scores or credit-based insurance scores, along with other factors to help underwrite and price homeowners insurance (and also automobile) policies, said Mark Friedlander, senior director, media relations at Triple-I.
"Risk-based pricing, a fundamental insurance principle, means offering different prices for the same coverage level based on risk factors specific to each customer, property or vehicle," Friedlander said. "How one manages their finances is a predictor of risk and proven by actuarial science."
Using this approach means insurers can offer the lowest possible premiums to those homeowners "with favorable risk factors," while at the same time having enough financial resources to pay all of their claims, Friedlander continued.
The scores have decades of actuarial data behind them to show they're reliable predictors of risk and this keeps costs to homeowners' fair, added Jimi Grande, senior vice president of federal and political affairs at the National Association of Mutual Insurance Companies.
"Families are already facing higher premiums from more severe weather and rising rebuilding costs," Grande said. "Removing a proven, neutral risk tool now would only add more uncertainty and cost pressure."
A September 2024 study from
"Instead of maintaining adequate reserves to cover the likely potential damage from storms, floods and forest fires, many insurers distribute the funds to shareholders or move them to other subsidiaries," Martin Weiss, its founder, said in a press release at the time. "Now, to make ends meet, these companies are closing about half of homeowner claims with no payment whatsoever."
Who else signed the letter
The other signatories on the letter are also Democrats. On the Senate side, they include Chris Van Hollen of Maryland; Richard Blumenthal of Connecticut; Tammy Duckworth of Illinois; Ruben Gallego of Arizona; Adam Schiff of California and Ron Wyden of Oregon.
House members who signed the letter in addition to Pressley are: Rashida Tlaib and Shri Thanedar of Michigan; Ilhan Omar of Minnesota; Nikema Williams of Georgia; James McGovern of Massachusetts; Bonnie Watson Coleman of New Jersey; Pramila Jayapal of Washington; Alexandra Ocasio-Cortez of New York; Al Green and Sylvia Garcia of Texas; Andre Carson of Indiana; and Sean Casten of Illinois.
