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West Virginia Legislation Tackles Auto Insurance

The West Virginia House of Representatives is working on a measure that would work to counteract the high cost of auto insurance in the state. House Bill 2092 is on the House floor being debated. It would amend several sections of the Code of West Virginia, specifically making changes to parts dealing with the use of credit information in the setting of auto insurance scores. The measure has yet to see a full House vote at this time, but its passage might have some interesting consequences for state auto insurance consumers.

Basics of WV HB 2092

West Virginia HB 2092 makes certain changes to the existing car insurance code for the state. If this bill is voted into law by both chambers of the state legislature and signed by the governor, it will affect the way the Code of West Virginia deals with car insurance. Specifically, the changes being proposed by sponsoring House members would change the ways in which insurers are allowed to use credit as a component of their system for determining pricing and eligibility for auto insurance coverage in the state.

This is an interesting case to keep track of because the concept of credit based auto insurance scoring has come under so much fire as of late. Popular and legislative support for this indirect risk assessment tool used by the industry has wavered somewhat lately, although not enough to force any major bills through the various legislative bodies throughout the country. If the West Virginia legislature can come up with a way to pass a measure, perhaps other states will follow.

Given current economic conditions across the country, consumers are becoming more agitated with expenses like auto insurance premiums. Other states such as Michigan and California are working on legislation or ballot initiatives to try to do something about car insurance prices or offer low cost options to drivers. Michigan has been a battleground over a similar idea to West Virginia's to limit credit based insurance scoring as usable criteria for setting rates and determining eligibility for auto insurance policies.

The purpose of the West Virginia bill is to try to modify existing state car insurance law to benefit consumers by making changes to help lower their rates. Proponents of the measure hope to achieve this in several ways. First, the bill would limit the use of a driver's credit score to only banking institution credit scoring for casualty insurance filings. It would thus prohibit the use credit based scoring as a factor in calculating premiums for automobile insurance policies. It would also prohibit insurers from taking the number inquiries that appear on a credit report, credit score or CLUE report into consideration on a driver's application for insurance. Finally, it would prohibit insurers from relying on information they find in these reports which is incorrect or even potentially so [1].

Scope of Proposed Code Changes

The changes that HB 2092's sponsors have in mind would significantly shape the way auto insurers are allowed to do things in the state of West Virginia. Auto insurance companies have been using credit based insurance scoring across the industry for close to 20 years now. They regard it as a way to accurately predict the risk factors associated with insuring particular demographics. In this case those demographics are divided up by credit performance.

Industry researchers have spent years looking for indirect ways to predict risk for individual drivers given the fact that they cannot follow every driver around and the only data they have on the driving performance of individuals comes in the form of accident and ticket data. By analyzing credit performance against driving records in large samples the auto insurance has found that there is a strong positive correlation between high credit scores and low risk of accidents and claims; and an analogous correlation between low credit scores and high risk of accidents and claims in populations of similar ages and other demographic points.

But this proposed legal change in West Virginia would eliminate the option for auto insurers to use credit as a consideration in pricing or eligibility for programs. Just like in Michigan and elsewhere, proponents of the measure say that credit based insurance scoring is unfair because credit performance and driving ability are two distinct and separate traits. But opponents in both states feel that credit based insurance scoring helps more people than it hurts financially, and that eliminating it would hamstring insurers' ability to reward drivers who represent low risks to insure.

What is clear is that if this measure passes or others like it do around the country, the insurance industry will have to come up with new ways to try to indirectly assess risk. HB 2092 will be interesting to follow.


[1] http://www.legis.state.wv.us/bill_status/Bills_text.cfm?billdoc=hb2092 intr.htm&i=2092&yr=2010&sesstype=RS&btype=bill Retrieved 2010-03-14.

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