Credit insurance is, in my opinion, the WORST type of insurance in the state of Colorado. And this year there are three bills in the legislature that will probably become law and make it even worse.

As a consumer, you can inspect various types of life, health, and accident, or property insurance, and pick the policy you think provides the best coverage at the least possible cost. But you can't do that with credit insurance.

If you buy a car or other large items on credit, you are often urged by the seller or lender to buy their credit insurance to "protect" you in case the property is damaged, or you lose your job, are disabled, ill, injured, or die. What the seller or lender doesn't tell you is that you might already be covered by your regular insurance policies. That piece of paper is put in front of your face by the seller or lender and you sign.

And what the seller or lender also doesn't tell you is what the Dept. of Regulatory Agencies told the Colorado legislature three and a half years ago:

"Higher rates cost Colorado consumers millions of dollars a year in over-priced credit insurance."

Only forty cents of every dollar you put in the pot for all types of credit insurance in Colorado has to be paid back to the consumer. It is the LOWEST pay back percent in the United States. The other 60 cents? It goes to the insurance company and the "insurance agent" who is often the CEO of the retailer you buy from or the lender you borrow from.

Formulas in the insurance laws allow the person receiving the commission to keep as much as 40 cents of the dollar.

Not every lending group treats the consumer badly on credit insurance. Credit Unions in Colorado do provide a 60 percent or better loss ratio on premiums paid for credit insurance.

Doesn't the free market allow the consumer to buy credit insurance at the lowest price? No. DORA states "The seller of the product rather than the consumer chooses which insurer will provide the coverage." These are GROUP insurance policies. "Consequently, insurers compete for credit insurance NOT by lowering the price to gain consumers but rather by offering HIGHER compensation to the creditor."

Which makes SB 106 by Sen. David Owen, R-Greeley and Rep. Jack Taylor, R-Steamboat Springs VERY interesting. The bill title is "Concerning the Elimination of Requirements for Approval by the Commissioner of Insurance for Certain Types of Insurance." The summary "Declares that open competition is beneficial to the consumer as well as the insurance industry." That may well be true as to many types of insurance but NOT TRUE of credit insurance.

What the bill does, and you won't find it revealed in the language, is change the burden of proof. Presently the Insurance Commissioner approves or disapproves what the credit insurance companies plan to do in relation to their insurance policies. If the companies don't like what the commissioner is doing they can appeal, but they have the burden of proving the commissioner was wrong.

Under SB 106, that is turned upside down. After the policies are released to the public, the commissioner has to go forward to prove the company has violated the law.

Why is it important to keep tight control over credit insurance companies? The last DORA report on the Insurance Division was in 1996 and it tells us "...the Division of Insurance exams of twenty credit insurers (found) sixteen were charging higher rates than allowed by statute resulting in thousands of dollars of excess premiums." One of the 16 companies was forced to refund $100,000.

Assume the amount of credit insurance issued in 1999 in Colorado was $100 million (and that is probably conservative.) Of that amount $40 million is returned to the consumer on claims paid. If you raised the loss ratio to 50 percent (which would still be at the very bottom in the U.S.) you are not going to get a larger "payback" to the consumer, because the $40 million represents actual losses.

What will happen is the amount of premium paid by the consumer is reduced to $80 million, a $20 million dollar saving. And don't forget the consumer is paying INTEREST on the credit insurance as well as on the sale or loan.

Another credit insurance bill is SB 130 by Sen. Mark Hillman, R-Burlington and Rep. Kenneth Kester, R-Las Animas. The bill would "delete the (no more than) 10-year requirement currently applicable to credit insurance under the Credit Insurance Act." Reason for the change? Lending on a second mortgage may be longer than ten years and credit insurance provides a great profit.

The third bill is HB 1292 by Rep. Kester and Sen. Hillman (a reversal of SB 130 sponsorship). Instead of a longer period of credit insurance coverage, HB 1292 provides "truncated" coverage (as in one-half coverage). As an example, when a four year loan is only half paid off and the property is not as valuable, or the debtor is now older and statistically more likely to die or become ill, there will be no payout from credit insurance.

Is it possible the consumer will ever pay lower premiums for credit insurance most of them don't need? They'll face groups such as the Colorado Bankers Assn., Colorado Automobile Dealers Assn., Financial Services Assn., Colorado Retail Council, Consumer Credit Insurance Assn., and Central States of Omaha. Guess who wins?

Jerry Kopel writes a column for the Statesman based on 22 years past experience as a state legislator.