Matic Insurance Unveils New Findings on Homeowners Insurance Rates Amid Credit Restriction Laws
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By Matic
Homeowners with lower credit pay 42% more for insurance in states without credit restriction laws
Columbus, Ohio, March 19, 2024 (GLOBE NEWSWIRE) — Matic, a leading digital insurtech platform, today revealed new findings on the impact of credit restriction laws on home insurance rates across the US.
In a study analyzing the correlation between credit scores and home insurance premiums, Matic noted significant differences in the cost of insurance depending on a person’s credit score, particularly in states with no restrictions on the use of credit information by insurance companies.
While the majority of US states allow insurance carriers to utilize credit-based insurance scores to determine rates or decide whether to offer an insurance policy, some have passed laws that restrict its use, aiming to ensure fair access to insurance regardless of a person’s financial standing. Eight states currently prohibit or significantly limit insurance companies from using credit information to make policy decisions, including California, Hawaii, Maryland, Michigan, Massachusetts, Oregon, Utah, and most recently, Nevada.
According to Matic’s premium and coverage A (Cov A) data collected between June 1, 2022 and March 1, 2024, credit restriction laws help stabilize insurance premiums, but do not completely alleviate the burden on homeowners with lower credit scores. Homeowners with credit scores below 580 and located in states with credit use restrictions still paid approximately 15% or $174 more than those with FICO scores of 740-799. In states without restrictions, however, the disparity was significantly higher at $496 or about 35%, indicating that homeowners with lower credit scores may find themselves at an advantage in states with credit restriction laws. Most notably, homeowners with a FICO score below 580 are paying 42% more for insurance in states without credit restriction laws compared to people with the same scores in credit-restricted states.
Even with higher Cov A, the part of a policy that covers the main structure of a home if it becomes damaged or destroyed, homeowners in states with credit restriction laws pay less for insurance. For example, the average Cov A is $412,236 in states with restrictions on credit versus $376,060 in states without credit restrictions for people with FICO scores between 740 and 799.
In addition to facing disadvantages in states without credit restriction laws, people with lower FICO scores appear to be taking on more risk with higher deductibles to lower their premiums. For example, homeowners with FICO scores between 580 and 669 had an average deductible of $1,397 from January 2022-March 2023, versus a $1,712 average deductible from January 2023-March 2024, a $315 increase. Conversely, homeowners with FICO scores between 740 and 799 had a deductible of $1,349 from January 2022-March 2023 and experienced a less severe $262 deductible increase in the following year. The significant increase in deductibles across all FICO categories is largely a result of carriers enforcing or recommending higher deductibles to reduce their losses in a tough insurance market, while some homeowners are self-selecting this route to offset increased premiums.
As it becomes clear that the use of credit in making insurance decisions can negatively affect consumers, more state regulators are considering how to reduce the impact. Recent developments across the US include Nevada’s temporary ban on considering negative credit information from events that happened after March 1, 2020. If the law doesn’t become permanent, the restriction on credit-based insurance scores will expire in May 2024. Additionally, states like Illinois are contemplating measures to address the adverse effects of credit scores on insurance rates, exemplified by the introduction of a bill aimed at banning auto insurers from setting rates based on race, gender, and credit score.
For more insights on how the use of credit information has impacted insurance rates and availability, visit matic.com for an in-depth report.
About Matic
Since 2014, Matic has changed the landscape of the insurtech industry by integrating insurance within the home and auto ownership experience. Today, Matic’s digital insurance marketplace has over 50 carriers, as well as distribution partners in industries ranging from mortgage originations and servicing to banking, real estate, personal finance, and more. With a single-minded focus on advocating for policyholders, Matic has created an easy and transparent shopping process, saving customers hours of work and over 30% in premiums each year. For more information, visit matic.com.
