A new federal appellate court ruling will guarantee that people will know if they’re being charged a higher amount on their home or car insurance — and why.
The 9th U.S. Circuit Court of Appeals said federal law requires insurance companies to notify people when something in their credit history
results in them being charged a rate higher than they might otherwise pay. And the judges said even basing policy charges on the lack of a credit history could trigger a mandate for customer notification.
Erin Klug, spokeswoman for the Arizona Department of Insurance, said state law already includes some of these protections. But Klug said it appears the appellate court decision could increase the types of situations where policyholders will be getting information that they are not, in fact, being charged the lowest rate possible.
All this is critical, she said, because the only way a person would know that a surcharge has been put on the insurance premiums is by being told by the companies. That notification, Klug said, allows the policyholder to then see what it is in his or her credit report --and, if necessary, correct it. And that, in turn, could lead to lower premiums.
At the heart of the battle is the sometimes controversial practice of insurance companies using someone’s credit report as the basis for deciding how much to charge for a policy.
That would mean someone who does not pay a utility bill on time, or does not use credit, would pay a higher rate for insurance coverage than someone with exactly the same driving record or history of claims on an automobile or homeowners’ policy.
The new appellate court ruling was not based on any state law but instead the federal Fair Credit Reporting Act. That law has its own mandates.