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Iowa Auto Insurance Extraordinary Circumstances Bill

An extraordinary circumstances auto insurance bill is being worked on in the Iowa legislature. The bill, Senate File 2075, a revised version of an earlier bill, passed the state Senate Commerce Committee on February 2. This extraordinary circumstances auto insurance bill would protect Iowans from unreasonable rate increases in their auto insurance premiums. One of the sponsors of Senate File 2075 is state Senator Democrat Rich Olive (Story City), who also happens to be an insurance agent. The bill is partly modeled on the National Conference of Insurance Legislators (NCOIL) model bill for extraordinary circumstances.

Overview of Extraordinary Circumstances Bill

Senate File 2075 if passed into law would protect Iowa car owners from what the bill calls unreasonable auto insurance costs. It would legally prevent auto insurance providers in the state from increasing the rates of Iowa drivers based on the effects of things like military deployment, job loss, death or serious illness, natural disaster or identity theft. According to the bill, any of these events could lead to a lowered credit score, which in turn could cause insurers to increase the rates of those affected by these extraordinary events in their lives. Consumers who have gone through or who are going through these sorts of extraordinary circumstances in their lives are protected by this bill because it gives them a chance to explain themselves when their credit scores go awry for justifiable reasons.

The bill requires auto insurance providers to tell consumers when they are raising their rates due to a change in their credit scores. This is to promote transparency in auto credit scoring. It is also to allow consumers a chance to prove to providers that a drop in their credit scores was a direct result of extraordinary circumstances in their lives, things which were beyond their control. As part of the process, consumers are required to prove this was the case, including the use of independently verifiable documentation of the event. Auto insurance consumers affected by rate hikes tied to their credit reports must also be able to prove that any specified extraordinary circumstance had a direct and harmful impact on their credit scores [2].

Iowa Bill Requirements for Insurers

Iowa state Senate File 2075 dealing with extraordinary circumstances in auto insurance credit related pricing has a number of requirements for insurers in the state industry. It requires auto insurance providers in the state to inform consumers with a notice that reasonable exceptions are available to the rate increases they are experiencing when those rate increases are tied to credit scores, and it requires insurers to give consumers information as well about where to look to investigate such exceptions to the rate increases. Upon receipt of any appeal from a consumer citing extraordinary circumstances as the cause of a drop in their credit scores, an auto insurance provider has 30 days to inform the consumer of their approval for an exception to the standard credit based increase in rates [2].

In the state of Iowa along with states all across the country, the economic struggles of the past few years have led to lingering problems like high rates of unemployment and underemployment, which in turn have perpetuated credit issues among residents. Other events such as military deployment of a family member or a death or serious sickness in the family contributing to family economic troubles are longstanding problems, but the particular current economic environment of the state today has made these other issues even more of a concern to Iowans.

In many cases the loss of a job is just the beginning of larger financial problems. If a household provider loses a job, it creates a domino effect of financial repercussions. While the breadwinner is out looking for a replacement job, bills continue to pile up and savings are quickly depleted. Meanwhile, even if a new job is found, it is very likely at a lower pay scale, forcing the family to try and adjust their budget in an emergency setting while they are also trying to pay back money they owe on bills that were created during the time previous to the original job loss. Just finding a new job in today's economy is only the beginning of the process of recovery. This is why nationwide economic progress is so slow in coming. The same principles at work at the household level are present on a massive scale nationwide.

Auto Insurance and Credit Scores

Auto insurance is just one of the dominoes that tend to fall when things go wrong at home. When you lose your job or your income is seriously compromised, one of the things that are immediately impacted is your present ability to meet current financial obligations. Even if you are able to stay current on your auto insurance bills themselves, you can still end up getting punished by your auto insurance provider for missed payments elsewhere since so much of our car insurance pricing is tied up in our credit report.

Credit based auto insurance scoring is a practice that has existed in the auto industry for at least the past 20 years. It has become standard across the industry with every major insurer using credit based scoring to some extent to help them in setting their prices. Many critics of the practice complain that it is unfair to low income drivers who tend to have lower credit scores due to economic struggles negatively affecting their ability to keep up with financial obligations. There has been increased popular and legislative momentum over the past few years toward eliminating or limiting the use of credit based insurance scoring in the determination of rates and eligibility for coverage.

Critics of credit based scoring such as the type in use in the state of Iowa say that a credit score is just a number and has little bearing on how well an individual can handle an automobile. This is certainly true on an individual level, but the auto insurance industry has extensively studied the connection between credit and claims and consistently found strong positive connections between low credit scores and higher rates of claims. The Iowa extraordinary circumstances bill seeks to implement limits to credit based insurance scoring by allowing for exceptions in cases that artificially lower credit scores. These types of cases would appear to work against statistics suggesting a strong linkage between credit and claims, anyway, because a driver who had good credit yesterday all of a sudden has a poor credit score today due to some sort of financial crisis, and yet the driving record is unchanged.

The debate over credit based auto insurance scoring is ongoing and evolving, both in the state of Iowa and around the country. Iowa Senate File 2075 is just another of many examples of legislative efforts attempting to either limit or completely eliminate the use of credit scores in the consideration of auto insurance policy pricing. The Iowa auto insurance extraordinary circumstances bill will certainly change the car insurance industry across the state if it passes. It could also have its own domino effect in states across the country.

[2] http://coolice.legis.state.ia.us/Cool-ICE/default.asp?Category=billinfo&Service=billbook&menu=false&ga=83&hbill=SF2075 Retrieved 2010-02-12.

 

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