Robert Melvin, Northeast Region Director at the R Street Institute, provided testimony to the Virginia House Labor and Commerce Committee in opposition to House Bill 1228. The bill would prohibit automobile insurance companies from using an applicant’s credit information when determining risk for setting rates.
Melvin stated, “We oppose House Bill 1228 because it would imperil a competitive insurance market.” He emphasized that the R Street Institute believes markets are best suited to regulate insurance rates and that restricting underwriting criteria could harm competition.
The R Street Institute has regularly assessed state insurance regulation through its Insurance Regulation Report Card. In its most recent 2024 report, Virginia ranked third nationwide and received an A grade for its property and casualty insurance regulatory environment. The organization argues that limiting the use of credit history in rate-setting could negatively impact this strong performance (https://www.rstreet.org/research/2024-insurance-regulation-report-card/).
Melvin clarified the distinction between credit-based insurance scores and traditional credit scores. He noted that while both utilize financial information, credit-based insurance scores aggregate several factors—such as outstanding debt, length of credit history, bankruptcies, collections, and new credit requests—to create a comprehensive risk profile (https://www.insurancejournal.com/blogs/2021/05/20/615231.htm;https://www.iii.org/article/background-on-credit-scoring). Credit scores typically focus on payment history and delinquency.
He cited studies showing a strong correlation between better insurance scores and lower average losses per vehicle. For example, research by the Texas Department of Insurance found that as applicants’ credit scores improved, their average loss per vehicle decreased (https://www.tdi.texas.gov/reports/documents/creditrpt04.pdf). The Federal Trade Commission also reported similar findings to Congress regarding the predictive value of these scores for automobile insurance risk (https://www.ftc.gov/sites/default/files/documents/reports/credit-based-insurance-scores-impacts-consumers-automobile-insurance-report-congress-federal-trade/p044804facta_report_credit-based_insurance_scores.pdf).
According to Melvin’s testimony, credit scoring is among the fairest rating methods available to insurers apart from telematics data about individual driving behavior (https://content.naic.org/cipr-topics/telematicsusage-based-insurance#:~:text=The%20use%20of%20telematics%20helps,refine%20or%20differentiate%20UBI%20products.). He referenced guidance from the National Association of Insurance Commissioners stating that personal characteristics such as race or income are not included in calculating these scores (https://naic.soutronglobal.net/Portal/Public/en-GB/RecordView/Index/25389). Furthermore, he pointed out evidence indicating no link between credit ratings and income or wealth; instead, they reflect how individuals manage personal finances.
Melvin warned that prohibiting insurers from considering credit-based insurance scores could result in higher premiums for low-risk drivers due to reduced pricing accuracy. This could force lower-risk customers to subsidize higher-risk ones (https://www.fool.com/earnings/call-transcripts/2021/10/19/the-travelers-companies-inc-trv-q3-2021-earnings-c).
He concluded by urging lawmakers to consider these points: “Limiting the use of credit scores as one of the many factors that are used for insurance rate-setting will have unanticipated outcomes and undermine Virginia’s competitive insurance market. For these reasons, we strongly encourage you to oppose HB 1228 as drafted.”
