Iowa Proposes Bill to Remove Credit Scores from Auto Insurance

Iowa Lawmakers Propose Bill to Eliminate Credit Scores from Auto Insurance Underwriting

Iowa House of Representatives members have introduced a pivotal proposal, House File 2259, aiming to eliminate the use of credit scores in auto insurance underwriting. This legislative move seeks to prevent insurance carriers from factoring in credit scores when determining premiums and risk management for auto, snowmobile, and recreational vehicle policies.

Currently, Iowa regulations permit insurers to include credit scores for underwriting and rating decisions, though they cannot base denial, cancellation, or non-renewal strictly on credit information. Insurers must employ credit scores updated within 90 days. Nevertheless, this practice often results in drivers with lower credit scores paying premiums as much as 140% higher than those with higher scores, markedly surpassing the national average increase of 105% for full coverage.

State Comparisons and Legislative Movements

This bill aligns with actions taken by other states such as California, Hawaii, Massachusetts, and Michigan, where credit-based insurance scoring has been prohibited. Michigan recently implemented its ban in 2020. Meanwhile, states like Maryland, Oregon, and Utah impose certain restrictions, though Washington's broader ban was nullified by the courts in 2021.

The National Association of Insurance Commissioners (NAIC) acknowledges that credit scores help carriers assess individual risk profiles. However, consumer advocacy groups argue that AI-driven prior authorization delays could lead to unfair impacts on lower-income and minority communities. Such regulatory compliance requirements continue to fuel debates within the industry.

Industry Implications and Risk Management

The Insurance Information Institute (Triple-I) maintains that risk-based pricing is vital for actuarial fairness, reflecting the actual risks of policyholders. Industry stakeholders suggest that removing credit scores from underwriting may disrupt existing pricing models, with far-reaching consequences for premium distribution.

Approximately 95% of auto insurers utilize credit scores where permitted, according to credit rating agencies cited by the NAIC. Observers throughout the industry will monitor Iowa's legislative developments closely, as similar proposals in other regions could reshape underwriting practices and affect the balance of premiums. Stakeholders are advised to remain informed on regulatory changes and consider the implications for future underwriting strategies.