A link on Progressive's website just cost the insurer $125,000.
The link, which explained to customers how their credit was affecting their auto insurance rates, is technically not allowed in Massachusetts because the state prohibits the use of socioeconomic factors in insurance underwriting. As punishment, the state ordered the insurer to pay up.
Massachusetts has some of the strongest consumer protections in the country when it comes to insurance. For years, various administrative regulations have prohibited insurers from using credit history, along with marital status and occupation, to determine insurance rates. In November, the state took things further by passing a law making the use of credit history in underwriting unlawful.
The problem with Progressive started in September 2010, according to the Massachusetts Office of Consumer Affairs and Business Regulation. Massachusetts customers who clicked on a link called "Your Credit Information" were taken to a page that explained how credit relates to insurance rates. Clicking on the link also generated a "personal insurance credit inquiry," which explained how the customer's credit history was harming or helping his or her auto insurance premium.
The state requested that Progressive take down the link in November, and the insurer complied. However, while the link was up, an estimated 3,200 Massachusetts residents clicked on it. Progressive now will have to contact all of the customers who viewed the page and offer them a free check of their credit report in addition to paying the fine to the state.
"Our regulations make it very clear that carriers cannot use credit information in insurance rating or underwriting for Massachusetts drivers. This is a serious violation of those regulations and the public trust," Joseph Murphy, state insurance commissioner, said in a statement.
According to Progressive, the link appears on its pages for all states where using credit is allowed -- the insurer simply had neglected to remove it from its Massachusetts page. Despite the erroneous link, credit history was not used in rating any personal auto insurance policies in Massachusetts.
"When we discovered our error, we immediately removed the link, and we have made changes to our internal review process to ensure this doesn’t happen in the future," Progressive spokeswoman Leah Knapp said. "Additionally, we are reaching out to those who clicked on the link to apologize for any confusion we may have caused."
In states where it's allowed, auto insurance companies often take a peek at customers' credit history because research has shown that financial responsibility correlates with responsibility on the road. Therefore, customers with bad credit might pay more for auto insurance than those with similar driving records who happen to have good credit. Insurers claim that using credit history allows them to fairly assess premiums (and give some drivers discounts). But critics argue that credit histories often contain errors -- and that bad credit often results from financial hardships that have nothing to do with someone's driving record.