Insurer agrees to end unapproved use of credit score analysis in underwriting and implement other business practice reforms
California Insurance Commissioner Dave Jones has announced that Safeco Insurance Company has agreed to pay a $900,000 fine and reform its approval process for homeowners and auto insurance coverage. The company was fined for the unapproved use of credit scores to deny homeowners coverage, failure to follow its own approved rating guidelines and other auto rating violations.
“This case is a prime example of why market conduct exams are an important tool in insurance regulation,” Commissioner Jones said. "When we find that insurers are not complying with the law, we are able to take appropriate action and protect consumers.”
Market conduct exams are audits of insurers’ rating and underwriting or claim handling activities. Based on a routine exam covering periods of 2006 and 2007, the California Department of Insurance found that Safeco, now a subsidiary of Liberty Mutual, was using credit scores and credit components in underwriting homeowner insurance. The exam revealed that in 26 instances homeowners were declined due to their credit rating.
The exam also revealed that in more than 64,700 instances Safeco failed to follow its own approved rating guidelines, including inconsistently applying good driver discounts and discounts for operating a four-door vehicle. As a result of the findings, Safeco issued refunds for a three-year period, resulting in approximately $3.1 million being refunded to California policyholders.
Other non-compliance violations revealed during the exam included more than 38,000 instances where homeowners were not provided with the California Residential Property Bill of Rights and general rating violations where Safeco was using an unapproved rating model.
For commercial lines, the exam period was 12/1/06 through 2/28/07. For personal lines, the time period was 4/1/07 through 6/30/07. The examination work began on 4/2/07. The exam report was adopted on 12/18/09.
Notice of Noncompliance: http://www20.insurance.ca.gov/pdf/PLD/202791.pdf.
Stipulation: Order on Stipulation: http://www20.insurance.ca.gov/pdf/STIP/202793.pdf.
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