New Legislation Challenges Traditional Insurance Practices
New York’s auto insurance landscape could face a striking transformation under legislation recently proposed in the state Assembly. The bill, Assembly Bill A5638, seeks to curtail insurers’ use of credit scores when determining automobile insurance premiums. The initiative aims to make insurance pricing more equitable by eliminating a factor that some lawmakers argue disproportionately penalizes low-income individuals.
Under this piece of legislation, insurance providers would be prohibited from utilizing credit history as a primary factor of assessing the risk rate for an individual. Moreover, they will not be able to seek credit information from the policyholders for purposes of renewal. Supporters claim that this addresses an entrenched flaw within the system, however as is the case with most significant changes, not everyone is convinced about the this particular change’s benefits.
The Debate On Using Credit History And Driving Risk
The heart of the issue is whether credit history can accurately be considered an indicator of driving risk and insurers have answered that question in the affirmative for a long time now. Leverage finance have used credit based insurance scores which look at factors such as current debt amount, payment history, and new credit accounts. There is a relationship between low credit scores and frequent claim requests per a particular payment period. In turn, this justifies the argument made by insurers on needing to set higher premiums on people with bad credit.
Assembly member Pamela Hunt, one of the advocates for the bill, comes in on defending the fairness argument the approach does not take into account. Her statement “Credit Scores are not Causation, Credit Scores are Correlation” emphasizes the point she is fighting for. Facts suggest a good number of licensed drivers with low credit actually do tend to be responsible drivers. “Setting insurance premiums using credit history unfairly punishes the victims of circumstances beyond their control,” Hunter said.. “Using credit history to set insurance premiums unfairly punishes people for financial hardships unrelated to their driving behavior,” Hunter said.
Critics of the bill, primarily from the insurance industry, argue that removing credit as a pricing factor could lead to higher costs for all policyholders. By narrowing the pool of risk metrics, insurers could face increased uncertainty, which detractors warn might result in across-the-board premium hikes to compensate for the loss of accuracy in risk assessment.
Comparing How Other States Handle Credit-Based Premiums
New York is not alone in examining the role of credit in insurance. Four states—California, Hawaii, Massachusetts, and Michigan—already prohibit the use of credit scores in setting auto insurance rates. Meanwhile, Oregon and Utah impose limits on how insurers can use this data under specific conditions.
Other states, including Washington and New Mexico, are considering similar bans, signaling a broader reevaluation of this common underwriting tool. Advocates of the New York legislation often point to these existing bans as evidence that functioning insurance markets are viable without credit-based scoring, though critics are quick to highlight varying market dynamics that make direct comparisons tricky.
What’s Next for the Bill?
Legislation on this issue isn’t new to New York. Versions of the bill failed to advance during the 2021-2022 and 2023-2024 sessions, stalled in the Assembly and Senate Insurance Committees. Supporters are cautiously optimistic that this year’s iteration could gain traction in the wake of growing public awareness of equity and fairness in insurance practices.
Currently, the bill remains under review in the Assembly Insurance Committee and has yet to reach the Assembly or Senate floors. Should it pass both chambers, it would land on Governor Kathy Hochul’s desk for final approval. Notably, Governor Hochul has not publicly taken a position on the matter, keeping the bill’s fate uncertain.
How These Changes Could Impact Drivers
If enacted, this legislation would likely benefit drivers with poor credit, who have historically faced steep premiums regardless of their driving record. For these individuals, the change offers a reprieve, making auto insurance more affordable and accessible. For drivers with stellar credit, however, some anxiety may arise over the possibility of rate increases to offset insurers’ reduced ability to differentiate risk.
On a larger scale, this shift could influence national conversations around fairness and risk assessment in the insurance industry. It may also encourage insurers to rely more heavily on alternative factors, such as driving behavior and telematics programs, which monitor real-world habits like speed and braking.
For now, drivers in New York should stay watchful as the legislative process unfolds. While the potential changes may shake up traditional pricing models, they also underscore a growing demand for inclusivity and transparency in the insurance world. Whether praised as overdue reform or criticized as overreach, one thing is certain: the road ahead for New York’s auto insurance market is anything but dull.