New Orleans Are you kidding me? How can this be true? It turns out that home insurance companies in many states are not basing their premiums solely on the actuarial risks of your home, as much as they are on your personal credit history and credit scores. How did we all not know this?
Living in Louisiana, especially in New Orleans, we know something about home insurance and flood insurance. The article in the Times that led with a picture on the front page of the Business section had almost identical houses in northern Minnesota with one insured at $1200 and the other $2900, with the difference being that one family had a worse credit score. Initially, this caught my eye because in my neighborhood in the city, we’re strapped and paying close to $1000 per month! My daughter around the corner was paying almost the same and got a notice she was being cancelled because the broker said the house was over 100-years old. That wasn’t true in fact, but almost all of the houses in our neighborhood, hard by the Mississippi River, on high ground in the older part of town that didn’t flood in Katrina, are over 100-years old.
Flipping the pages to the real article, rather than the pictures, in a rarity Louisiana was on the good side of the national map, not perfect, but better than most. California, Massachusetts, and Maryland ban credit-based pricing. We’re not on that list, but we’re on the next best list with Washington State and Florida where using credit only jacks the insurance premium by a quarter compared to our regional neighbors Arkansas, Mississippi, Alabama, and Tennessee, all nearby, that allow credit scores to double the price of home insurance.
Of course, here’s the classic rub in our inequitable economy and society. As one of the researchers found, “…lower-credit home owners in risky areas are effectively subsidizing more affluent high-credit homeowners who live in risky areas. So, in a lot of ways, you can keep your insurance price down if you’re high income, high credit – even if you live on the coast of Florida.” Another research group found that homeowners with lower credit paid on average $550 more in 2024 for home insurance compared to the well to do. These days, you can’t turn your back without finding you’re getting screwed yet another way, unless you’re one of the uppity-ups.
Insurers justifications are absurd. Some argue that lower income customers file more claims for smaller amounts, than higher income customers. No, duh! They have less money, but that hardly argues for lower income families subsidizing higher income ones. Furthermore, on mortgages, insurance is paid in escrow, so essentially in advance of any claims, so companies arguing they will be stiffed is rubbish. In truth, they are really saying they don’t want to pay claims, just collect premiums. That’s not news, but why should state insurance regulators underwrite their greed?
Washington State briefly blocked credit-based rates and lower income families saw their rates go down and higher saw theirs go up a bit. Nevada gave it a shot and companies had to refund $27 million to 240,000 homeowners.
Where insurance commissioners are elected, this issue should be campaign fodder to force a change. Where they are appointed, governors should be held to account. If we still had a real Consumer Financial Protection Bureau, they would jump on this. If Congress were not owned by lobbyists, this would be banned. It’s outrageous!