R Street Testimony in Opposition to VA HB 1228, restriction on credit history in underwriting criteria
Testimony from:
Robert Melvin, Northeast Region Director, R Street Institute
Testimony in Opposition to House Bill 1228: “Motor vehicle insurance; use of certain factors to establish rates prohibited.”
February 3, 2026
House Labor and Commerce Committee, Subcommittee #1
Chairwoman Maldonado and members of the committee,
My name is Robert Melvin. I am the Northeast region director at the R Street Institute, which is a nonprofit, nonpartisan public policy research organization. Our mission is to engage in policy analysis and outreach to promote free markets and limited, effective government in many areas, including insurance regulation—an issue we have studied extensively since our founding in 2012. We oppose House Bill 1228 because it would imperil a competitive insurance market.
The R Street Institute recognizes that government plays an important role in managing and maintaining a healthy and functioning insurance market. It’s our strongly held conviction that the market is the best regulator of insurance rates. We view HB 1228 as contradictory to that philosophy since it would prohibit automobile insurance companies from using an applicant’s credit information in determining risk.
Every biennium, the R Street Institute releases our Insurance Regulation Report Card, which evaluates how states regulate property and casualty insurance markets. Virginia has notably ranked high in all our reports on this area, and continues this trend in the most recent 2024 version, where the Commonwealth had an A grade and ranked 3rd out of all fifty states.[1] By imposing constraints on automobile insurance companies’ application of credit history or scores in underwriting criteria the bill could undermine the state’s insurance market.[2]
We are concerned that this proposal is based on a misunderstanding of how credit-based insurance scores operate, which should not be equated with credit scores. The distinction is that credit-based insurance scores consider a multitude of factors related to applicants, including unsettled debt, the duration of credit history, bankruptcies, collections, new credit requests and other factors.[3] It’s the aggregation of these factors that is used to generate a comprehensive insurance score. In contrast, credit scores focus primarily on payment history and delinquency.[4]
Many studies have demonstrated a strong relationship between insurance scores and losses, and this is why insurance scores are widely accepted. One analysis that was conducted by the Texas Department of Insurance found that “there appears to be a strong relationship between credit score and insurance risk (or loss) […] as credit scores improve, the pure premium or average loss per vehicle decreases. Conversely, as the credit scores worsen, the average loss per vehicle increases.”[5] This study also concluded that credit-based insurance scores led to substantial gains in rate-setting accuracy when combined with other rating factors like a driver’s age.[6] The Federal Trade Commission reached the same conclusion in a study that was presented to Congress.[7]
Credit scoring is overwhelmingly the fairest and most inclusive metric for insurers outside of telematics, which detail individual driving behavior and mileage.[8] The National Association of Insurance Commissioners (NAIC) has held that credit-based insurance scores are precluded from using personal information—including race, religion, gender, marital status, income, employment history, interest rates, etc.—to determine a score.[9] They are one of many factors considered in determining premiums. The Texas Department of Insurance study found that consideration of credit scores doesn’t cause racial or income discrimination.[10] There is no nexus between credit ratings and income or wealth, but rather they measure an individual’s ability to effectively handle personal finances. Unlike an individual’s demographics, credit scores can be refined through debt reduction and maintaining low balances on loans.[11]
Prohibiting credit-based insurance scores from being used in underwriting will lead to spillover impacts, such as increased premiums for low-risk drivers and reducing pricing accuracy.[12] Restricting insurance companies from utilizing credit information for assessing risk will lead to lower-risk drivers subsidizing higher-risk drivers.[13]
Credit and other benchmarks used for ratemaking are critical for formulating accurate insurance prices.[14] As mentioned previously, placing limits on underwriting freedom through restrictions on rate-related factors will unwittingly create issues in the insurance market. Such restrictions will distort market-related signals that are used for assessing risk and lead to a surge in premiums for all insured drivers—the end result being that higher-risk drivers will struggle to secure insurance.[15]
We urge you to assess these facts as you consider HB 1228. Limiting the use of credit scores as one of the many factors that are used for insurance rate-setting will have unanticipated outcomes and undermine Virginia’s competitive insurance market. For these reasons, we strongly encourage you to oppose HB 1228 as drafted.
Thank you,
Robert Melvin
Northeast Region State Government Affairs Director
R Street Institute
rmelvin@rstreet.org
[1] Jerry Theodorou, “2024 Insurance Regulation Report Card,” R Street Policy Study No. 314 (December 2024). https://www.rstreet.org/research/2024-insurance-regulation-report-card/
[2] Ibid.
[3] Jerry Theodorou, “Credit-Based Insurance Scores – The Battle Heats Up,” Insurance Journal, May 20, 2021. https://www.insurancejournal.com/blogs/2021/05/20/615231.htm.“Background on: Credit scoring,” Insurance Information Institute, October 18, 2023 https://www.iii.org/article/background-on-credit-scoring
[4] Ibid.
[5] Texas Department of Insurance, “Report to the 79th Legislature: Use of Credit Information by Insurers in Texas.” Dec. 30, 2004. https://www.tdi.texas.gov/reports/documents/creditrpt04.pdf
[6] Ibid.
[7] U.S. Federal Trade Commission, “Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance,” July 2007. https://www.ftc.gov/sites/default/files/documents/reports/credit-based-insurance-scores-impacts-consumers-automobile-insurance-report-congress-federal-trade/p044804facta_report_credit-based_insurance_scores.pdf.
[8] Telematics/ Usage-Based Insurance,” National Association of Insurance Commissioners, Feb. 1, 2023. https://content.naic.org/cipr-topics/telematicsusage-based-insurance#:~:text=The%20use%20of%20telematics%20helps,refine%20or%20differentiate%20UBI%20products.
[9] “Credit-Based Insurance Scores Aren’t the Same as a Credit Score. Understand How Credit and Other Factors Determine Your Premiums,” National Association of Insurance Commissioners, July 22, 2020. https://naic.soutronglobal.net/Portal/Public/en-GB/RecordView/Index/25389.
[10] Ibid.
[11] MyFICO, “How to repair your credit and improve your FICO score,” last accessed March 25, 2025. https://www.myfico.com/credit-education/improve-your-credit-score.
[12] Motley Fool Transcribers, “The Travelers Companies Inc (TRV) Q3 2021 Earnings Call Transcript,” The Motley Fool, Oct. 19, 2021. https://www.fool.com/earnings/call-transcripts/2021/10/19/the-travelers-companies-inc-trv-q3-2021-earnings-c.
[13] Motley Fool Transcribers, “The Travelers Companies Inc (TRV) Q3 2021 Earnings Call Transcript,” The Motley Fool, Oct. 19, 2021. https://www.fool.com/earnings/call-transcripts/2021/10/19/the-travelers-companies-inc-trv-q3-2021-earnings-c.
[14] “Insurance Rating Variables: What They Are and Why They Matter,” Casualty Actuarial Society and Insurance Information Institute, July 2019. https://www.iii.org/sites/default/files/docs/pdf/ratingvariables_cas-iii_wp072419.pdf.
[15] Detlefsen. https://www.namic.org/pdf/040916UnderwritingPaper.pdf.