Washington, D.C.—The Colorado Legislature has passed an important consumer protection bill that will require insurers to demonstrate that their company practices – including rating, claims handling, and fraud investigation – do not unfairly discriminate against customers. In particular, SB 169 (sponsored by Senator Janet Buckner) identifies a range of classes – including race, ethnicity, gender, and sexual orientation – that are protected and require insurers to change practices when unfair discrimination results from algorithms or the use of external data sources by the insurer.
The Consumer Federation of America (CFA) said the bill places a spotlight on pricing practices – such as the use of credit scores – that tend to result in higher premium for consumers of color. The bill, supported by State Insurance Commissioner Michael Conway, will be sent to Governor Polis.
“This bill holds insurers accountable for systemic biases built into company practices by requiring that they test their data systems, algorithms, and models to identify unfairness that has historically been ignored and accepted,” said Michael DeLong, CFA’s Insurance Advocate. “The bill creates a process to ensure that insurance markets are more equitable. With its enactment, Colorado has an opportunity to be a leader in the national effort to reduce systemic bias in insurance and other financial services.”
CFA has conducted research about the implications of several pricing practices by insurers that will likely be subject to review under the new bill. Noting that data show Black, Latinx, and Indigenous Americans have lower credit scores on average than white Americans, CFA pointed to data it acquired from Quadrant Insurance Services, LLC about the impact of credit history on auto insurance premiums in Colorado. Using premium quotes for a 35-year-old with a perfect driving record, from ten of the largest insurers in Colorado for every ZIP code in the state, CFA found that:
- A driver with EXCELLENT credit pays an average annual premium of $592.11 for basic auto insurance coverage;
- If that driver has FAIR credit, their premium rises to $785.67, a 33% credit penalty; and,
- A good driver with POOR credit, sees the average annual premium increase by 72% to $1,019.59 for the same coverage.
While the bill does not prohibit the use of credit scoring in insurance, it bans insurers from using any external consumer data or information, algorithms, or predictive models that disproportionately harm members of any protected class. Under the law, the Insurance Commissioner will adopt rules to ensure that insurance carriers’ use of data and models does not lead to unfair discrimination, while giving companies the opportunity to mitigate any biases in their algorithms.
“This bill does not automatically change any insurance company practices, but it creates an important process to determine if unfair discrimination occurs in the Colorado insurance market and ensures that it will not persist if it is found,” said DeLong.