Insurers Warn of Potential Consequences
A newly introduced bill in the New Mexico House of Representatives aims to prohibit insurance carriers from using credit information when underwriting, rating, or renewing personal auto, motorcycle, or RV policies.
House Bill 80 expands 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 argue that eliminating credit information from underwriting could increase the number of insured drivers in New Mexico. In 2022, the state had the second-highest uninsured motorist rate in the U.S. at 24.9%, compared to the national average of 14%, according to the Insurance Information Institute. The bill’s summary suggests that credit-based pricing disproportionately affects lower-income drivers and exacerbates affordability challenges.
However, analysts warn of potential unintended consequences.
A report from AM Best highlights concerns that removing credit information from underwriting could lead insurers to exit the state or increase premiums for all drivers. Another concern is that higher premiums might result in a rise in uninsured motorists.
A 2023 Consumer Federation of America report found that the use of credit scores in insurance pricing often results in higher costs for minorities. The report noted that in New Mexico, a driver with an excellent driving record and excellent credit pays an average of $412 per year for auto insurance, whereas a driver with the same record but poor credit pays an average of $733 per year.
Pushback Against the Bill
The Independent Insurance Agents of New Mexico (IIANM) expressed concerns that the bill could negatively impact independent agencies. IIANM CEO Matt Hunton stated that the legislation could put independent agents at a competitive disadvantage compared to direct insurance providers.
Additionally, he pointed to the rising costs of auto insurance claims and questioned whether this is the right time to eliminate discounts for lower-risk drivers.
The American Property Casualty Insurance Association (APCIA) also opposes the bill, arguing that credit information has been a reliable predictor of claim frequency and severity for decades.
According to the APCIA, 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, cautioned that restricting insurers’ ability to assess risk could lead to rate hikes affecting various professionals, including teachers, nurses, seniors, law enforcement officers, firefighters, and military personnel.
