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Insurance > Credit Insurance
Consumers overcharged $2.5 billion for credit insurance, consumer groups say
MARCY GORDON, AP Business Writer. Associated Press.
Copyright Associated Press
WASHINGTON (AP) _ Consumers who bought credit insurance when they took out a loan, bought a car or got a credit card were overcharged by $2.5 billion last year, largely because state regulators failed to enforce laws on rates, two consumer groups said Thursday.
Inaction by insurance regulators in California and Ohio has caused consumers in those states to overpay some $340 million a year, according to a report released by the Consumer Federation of America and the Center for Economic Justice.
Many state insurance regulators "have failed to take the most basic steps to protect credit insurance consumers _ simply enforcing existing laws and regulations," said Birny Birnbaum, executive director of CEJ, a group based in Austin, Texas, that advocates for low-income consumers. "Credit insurance can be a valuable product to some consumers if it is priced right and sold fairly. Unfortunately, it is seldom priced fairly."
Birnbaum and Robert Hunter, director of insurance at the Consumer Federation, said at a news conference that most people, unless they are elderly or in poor health, don't need credit insurance since their life insurance policies could be used to cover the same needs.
Credit insurance pays a lender, such as a bank or finance company, car dealer, department store or credit card company, if a borrower becomes disabled or dies. Other types of credit insurance provide for monthly payments if a borrower becomes disabled, loses his job or takes a leave from work, or for repair or replacement of property bought with the loan or used as collateral.
Consumers pay some $6 billion in premiums for credit insurance each year, according to the two consumer groups.
Although buying the insurance usually is not mandatory, they maintain that it stifles competition because the lender, not the consumer, chooses the insurance company that provides it.
The groups also sent a letter to all the state insurance commissioners asking them "to do a better job of protecting credit insurance consumers" by enforcing state standards for loss ratios. The loss ratio is the ratio between the total amount paid out in benefits and the amount the consumer paid for the insurance.
Spokesmen for the National Association of Insurance Commissioners had no immediate comment.
The report named 23 states as failing to enforce their loss ratio standards for credit life and-or credit disability insurance: Arizona, Arkansas, California, Colorado, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Kansas, Massachusetts, Minnesota, New Hampshire, New Mexico, Ohio, Oregon, Rhode Island, South Dakota, Tennessee, Utah, Vermont and Wisconsin.
In addition, "not one single state" is enforcing standards for credit unemployment insurance, according to the report.
By contrast, it said, consumers in Maine, Maryland, New Jersey, New York, Pennsylvania and Virginia get good value for credit life and disability insurance.
In the California and Ohio cases, the consumer groups maintained that:
_California Insurance Commissioner Harry Low failed to establish new lower rates for credit insurance by last Jan. 1, as required by the Legislature. The Insurance Department does not expect to act until early next year. Estimated overcharges are $230 million a year.
Scott Edelen, the deputy commissioner, acknowledged the delay but said it was necessary to gather and analyze data to set the new rates.
"It was in the best interest of consumers," Edelen said in a telephone interview.
_Ohio's Insurance Department has not adjusted rates since 1985 despite regulations requiring an annual adjustment. Estimated overcharges are $110 million.
A spokesman for the department had no immediate comment.
On the Net: Consumer Federation: http://www.consumerfed.org Center for Economic Justice: http://www.cej-online.org National Association of Insurance Commissioners: http:// www.naic.org
Reproduced with permission of the copyright owner. Further reproduction or distribution is prohibited without permission.
Companies: Consumer Federation of America (NAICS: 541820, Duns:07-483-5349 )
Dateline: WASHINGTON
Text Word Count 595
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