Colorado Senate Votes to Ban This Controversial Car Insurance Practice
Andrew Koole
· 3 min read
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The
Colorado
Senate passed a bill on May 13, 2021 that targets discriminatory car insurance
practices. If the bill becomes law, it would ban insurers from using any information "that unfairly discriminates against an individual based on race, color, national or ethnic origin, religion, sex, sexual orientation, or gender identity." The Colorado House received
Senate Bill 21-169
on May 18. It was assigned to the House Health & Insurance Committee. The state moves forward with the bill as pressure grows to target unfair insurance practices across the country. 
How do credit scores influence car insurance?
States are focused primarily on ending the use of credit history to set premium rates after the
Consumer Federation of America
(CFA) released a report in March that said the practice unfairly penalizes lower-income Americans and contributes to racial discrimination. The Colorado bill specifically labels credit scores as an example of "external consumer data" that "unfairly discriminates" against individuals.
Credit scores are most commonly used by banks and businesses to help them decide whether to offer you loans or allow you to buy products through financing agreements. Since you pay for your insurance policy before insurers cover you, it might seem odd that your credit score can play a role in setting your rates.
But insurance companies calculate risk to decide what you pay for insurance, and, in 2007, the
Federal Trade Commission
(FTC) reported that "credit-based insurance scores… are predictive of the number of claims consumers file and the total cost of those claims." Let Jerry find your price in only 45 seconds
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What does this mean for drivers in Colorado?
If you have bad credit, the FTC report says you are more likely to be involved in
car accidents
, and your insurance provider is more likely to lose money by covering you. To make up for the estimated loss, the company will raise your premiums—the lower your score, the higher your rate.The effect of your credit score on your insurance premiums changes based on where you live. The CFA report shows that in some states, your rate could double based on your credit score alone!
The state of credit-based insurance in America
Senator Janet Buckner’s bill adds Colorado to a growing group of states trying to ban credit-based insurance.
Illinois, Oregon, New York, and Utah have already limited how your credit score can be used to set your insurance rates, and according to
Newsweek
, California, Hawaii, Massachusetts, and Michigan have outlawed the practice altogether. Along with Colorado, the following states have legislation in the works to implement full bans of credit-based insurance scores:
- New Jersey (Senate bill awaits hearing from insurance committee)
- Oregon (bill in committee)
- Washington (bill in committee with a three-year ban in place)
- West Virginia (in Senate committee)
Federally, a bill was introduced to
Congress
called the PAID Act. If passed, it would outlaw the use of credit scoring for determining insurance rates in the U.S. Congress referred the bill to the Subcommittee on Consumer Protection and Commerce on February 24, 2021.Navigating state car insurance laws
State laws vary greatly when it comes to insurance. In Virginia and New Hampshire, you don’t legally need auto insurance at all!
All these differences can make buying insurance intimidating. Lucky for you,
Jerry
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