Credit-related rules lower homeowner premiums in some states

The rising cost of homeowners insurance has been a growing concern in the mortgage industry as it can affect consumers' ability to qualify for financing and the performance of their loans; but restrictions on credit-based pricing are mitigating it in some states, a new study finds.

People in states that don't have the pricing restrictions are paying more based on average premiums across a range of four credit tiers, according to a report by Matic Insurance.

Even people with relatively high FICO scores between 740-799 pay less with an average of  $1,176 in premiums in states with restrictions as compared to $1,423 in jurisdictions that don't have such rules.

Consumers with scores in the 670-740 range pay $1,244 as opposed to $1,516, respectively. The cost for those with 580-669 scores is $1,426 vs. $1,708. The average premium for those with scores below 580 is $1,350 compared to $1,919.

These findings reflect data collected between June 1, 2022 and March 1, 2024 and are interesting when compared to some other earlier studies examining how credit-based pricing affected premiums.

A 2017 study by the Arkansas Insurance Department found that credit-based pricing lowered premiums for the majority, or 56.6%, of consumers in 2016. It raised premiums for 16.5% and had a neutral impact on the balance.

Eight states currently have restrictions: California, Hawaii, Maryland, Michigan, Massachusetts, Oregon, Nevada and Utah, according to the National Association of Insurance Commissioners. Nevada's pandemic-era restriction is temporary and set to end in May.

Some of the states have an outright ban on negative credit-based pricing. Others disallow the use of credit scores in determining whether someone qualifies for coverage, according to an Experian report.

While credit-related restrictions can provide a price break for consumers, at a time when insurance carriers have left some markets, citing unmanageable risks and costs, that industry's opposition to them is a concern. Some insurance entities have filed lawsuits against the rules.

The National Association of Mutual Insurance Companies challenged Nevada's temporary ban. But the state's supreme court allowed it to stand in a decision issued early last year.

Outcomes of legal challenges have been mixed.

A court in Washington state overturned restrictions that previously existed there in August 2022.

The Matic study also found consumers across credit score bands have been agreeing to higher deductibles in order to offset the rising cost of home insurance, and found for those with lower credit scores, there's been more of an increase in the amount.

The difference in the average deductible for people with credit scores in the 580-669 range between Jan. 1, 2023 and March 1, 2024 was $315 higher than from Jan. 1, 2022 to March 1, 2023. For 670-740 scores it was $299 higher. FICOs in the 740-799 band were up by $262.

Matic is a digital insurance marketplace that works with more than 40 home and auto insurance companies. It works with a group of distribution partners that includes banks, mortgage originators and servicers.