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F I S C A L I M P A C T R E P O R T

SPONSOR M Sanchez

DATE TYPED 2/4/05

HB

SHORT TITLE Prohibit Certain Car Insurance Cancellations

SB 359

ANALYST Wilson

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

See Narrative

Relates to SB 560

SOURCES OF INFORMATION

LFC Files

Responses Received From

Public Regulation Commission (PRC)

SUMMARY

Synopsis of Bill

Senate Bill 359 prohibits insurers from canceling or raising premiums on commercial as well as

personal automobile insurance policies due to unsatisfactory credit reports.

Significant Issues

In recent years most insurance companies have been using credit report information to help them

determine whether to accept, and how much premium to charge, applicants for automobile and

homeowners insurance. Insurers do so because many studies indicate a correlation between con-

sumers’ credit standing and their costliness as insurance customers.

Many consumers and consumer advocate groups oppose this use of credit information. Consum-

ers often disbelieve that their credit history can be an indicator of whether they will have an

automobile or homeowners’ insurance claim. Consumer advocates often believe that various

low-income and ethnic groups have poorer than average credit histories and are further disadvan-

taged by having to pay higher than average premiums due to credit rating.

Senate Bill 359 -- Page 2

The Superintendent of Insurance convened a task force in 2002 to advise him on this issue. The

task force concluded its study in October 2002 and submitted to the Superintendent a list of rec-

ommendations for regulating the use of credit report information in the rating and underwriting

of both automobile and homeowners insurance in order to protect consumers from potential

abuses.

FISCAL IMPLICATIONS

The PRC states the impact of a ban on canceling or raising premiums on automobile insurance

policies due to unsatisfactory credit reports is unknown since few if any states have outlawed the

use of credit rating in automobile insurance. However, it is likely that some insurance compa-

nies will discontinue writing in New Mexico. It is also likely that a majority of New Mexico

drivers will see an increase in their automobile insurance premiums while a minority will see a

decrease in their premiums.

ADMINISTRATIVE IMPLICATIONS

By effectively disallowing credit information as a rating element in automobile insurance, this

bill will require the dozens of insurance companies that currently use credit rating in New Mex-

ico to revise their rates and rating manuals and file these revisions with the Insurance Division of

the PRC for the statutorily required review and prior approval. Due to the volume and complex-

ity of the filings involved, it is unlikely that this can be accomplished by the July 1, 2005 effec-

tive date of this act.

RELATIONSHIP

SB 359 relates to SB 560, Personal Insurance Credit Information.

TECHNICAL ISSUES

The Insurance Superintendent’s task force recommended that non-renewal, as well as cancella-

tion, of policies be prohibited because of adverse insurance credit scores. This could be accom-

plished by amending Section B as follows: “B. An insurer shall not cancel or non-renew a vehi-

cle insurance policy…”

OTHER SUBSTANTIVE ISSUES

The PRC also noted that this bill does not address the use of credit report information in home-

owners insurance although the issues involved are fairly identical to those in automobile insur-

ance.

Also, this bill does not prohibit insurance companies from using credit report information to help

determine whether to accept new applicants for insurance.

DW/yr